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Collecting debt from an individual can be tough. Generally you’ll be trying to collect such a debt from a friend, family or acquaintance who has borrowed the money either for personal or business purposes. Obviously if you have clearly documented your loan with a written loan agreement or promissory note, you can take legal action to reclaim the sum owed, but this is not usually the best approach. Generally personal debts are not large sums of money – taking legal action can cost quite a bit, so you can end up winning, being rewarded with a settlement and still being out of pocket due to your legal expenses!

Set out below are a few steps you should consider taking when trying to collect a personal debt:

1. Prepare for the worst

Before you even get the stage of trying to collect a debt, you will hopefully have prepared for the worst and documented the loan either with a loan agreement or a promissory note when the loan is actually made. This will put you in a much stronger position when trying to collect your debt down the track.

2. Talk!

If you’re collecting debt from an individual it’s likely you’re pretty well acquainted with the borrower. Don’t start by hiring a lawyer to demand payment, just get out and talk with your counterparty! It’s sometimes possible to convince the borrower to make the required payment without having to do anything more than ask nicely!

3. Put it in writing

It’s important that after you’ve asked for a payment to be made you send a letter requesting payment as well. Having a paper trail showing that the borrower is well aware of the overdue payment and has been requested to make it will be helpful down the track.

4. Amend the Terms of the Loan

Rather than demanding payment straight away, you can consider amending the terms of the loan agreement, either extending the payment schedule so the borrower has more time to make the payment, or reducing the interest rate. This is often a better option than going to court to collect payment; if the borrower just doesn’t have the funds you’re not going to achieve anything from taking legal action.

5. Talk to a Lawyer

Obviously there will be some situations where legal action is the best recourse; if the amount owned is significant and the borrower has the means, but not the desire, to repay the debt. In this sort of situation a lawyer can advise you on the best course of action and can take the first steps to collecting the debt (which generally involves sending a letter of demand).

LegalVision cannot provide legal assistance with this topic. We recommend you contact your local law society.

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