I Want to Recover a Debt. What Problems Will I Face?

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Table of Contents

• Why Haven’t You Been Paid?
• Prompting a Response
• Straightforward Recovery: Undisputed Debts
• Recovering a Disputed Debt in Court
• Settling Outside Court
• Key Takeaways

If you’ve completed the job, issued an invoice and the client hasn’t paid you yet, it can be difficult to know what to do next. Assuming that you’ve upheld your side of the deal, the law will be on your side. However, in reality, getting paid can still be difficult. There are some common problems that you should be aware of when trying to recover a debt. This article will lay out the key factors that you should consider when trying to recover debt and some common areas that can make it difficult.

Why Haven’t You Been Paid?

The first thing to determine is whether the debtor disagrees that they owe you money. This will have important implications. If they don’t dispute the claim, the process for debt recovery through the court system is relatively straightforward. On the other hand, if they present a decent argument against your claim, resolving the dispute in court can be complex and costly.

Prompting a Response

If you are unsure why you haven’t been paid, the first step is to ask. You should call or email the debtor before considering hiring a lawyer. It is a good idea to set up an invoice reminder system to regularly chase unpaid invoices.  

If you don’t have any luck chasing up the debtor yourself or you don’t want to waste any more of your time, you can instruct a lawyer to send a letter of demand on your behalf. This letter will threaten them with court action unless they pay the outstanding amount by a certain date.

The letter of demand is useful because:

• it is an intimidating letter to receive and may be enough to convince the debtor to pay you; and
• if they dispute the debt, it will likely prompt a response letter explaining why they haven’t paid you.

Straightforward Recovery: Undisputed Debts

If your letter of demand is unsuccessful, your next option will be going to court. The relevant court or tribunal will depend on your state or territory and the amount that the debtor owes you. If you serve a formal claim to the debtor, they will have up to 28 days to respond. If they fail to pay the debt or provide a defence in that time, you can apply for a default or automatic judgement. If the court issues a default judgement, you will have a range of options to enforce the judgment and recover your money.

When starting this process, it is important to keep in mind that:

• you will need the debtor’s address to deliver or serve the documents in the first place; and
• the debtor will need to have money (or the equivalent value in assets) to be able to pay you back.

Payment in Instalments

If their financial position prevents them from repaying the debt in full, you will be able to force them to repay the money in instalments. This may be taken directly from their bank account or wages. This is known as a garnishee order. If this is unsuccessful, you can apply to bankrupt them.

Overall, court proceedings to recover an undisputed debt will be time-consuming and will involve a fair amount of work. Furthermore, going to court will not necessarily guarantee that you get all of your money back.

Recovering a Disputed Debt in Court

The debtor will always have an opportunity to provide a defence and a counterclaim. Therefore, it is always wise to have your legal position reviewed before beginning legal proceedings. It is a good idea to assess whether they have a credible argument against your claim. For example, they may have a legitimate argument that you didn’t provide the goods or services to the standard that you promised, or within the timeframe that you agreed. They may also argue that you breached warranties according to Australian Consumer Law. For example, if the product or service is defective.

Using Legal Documents

If you send a letter of demand, their response may clarify their legal argument. This will give you a better idea of what you will be facing in court if legal proceedings begin. Furthermore, if the original agreement was in writing (i.e. you provided clear written Terms and Conditions of Sale or some equivalent contract), it will be easier to work out whether either of you breached your duties.

If nothing is in writing, the dispute may become more technical or complex. You will need to rely on evidence to show oral or implied terms in the agreement. Essentially it can come down to a ‘he said, she said’ argument in court.

Cost

As a general rule, the more complex the argument, the more drawn out and expensive a case becomes. The main cost will come from retaining a lawyer for the case. It is important to consider this from the beginning of the dispute and assess whether the size of the debt is large enough to justify paying fees for the court case. Your lawyer will be able to give you an estimate of the legal fees if the dispute goes to court and the debtor argues against you.

If you win the case, you may be able to recover some of the legal costs. However, the process of determining legal costs is complex. It is a common misconception that winning a case means that the losing side will cover all of your legal fees.

Settling Outside Court

Due to the high costs of battling a case in court, the majority of debt recovery cases are settled outside of court. If the circumstances surrounding the debt are difficult to determine legally, it may be a good idea to take this route. It is possible to reach a settlement after legal proceedings have started and you can still use lawyers to represent you during settlement negotiations.

Key Takeaways

If you are thinking about going to court to recover an unpaid debt, it is vital that you and your lawyer consider whether:

• you have sufficient information to go after the debtor;
• the debtor is likely to have enough money to pay you back;
• the debtor disputes the amount of money they owe you;
• the debtor’s arguments are legitimate;
• the terms and conditions of the sale or service back up your argument; and
• it is financially feasible to go to court.

If you have any questions about your debt situation or you want to go to court to recover a debt, you can contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.