Debt recovery
Recovering a debt has two halves that people tend to run together: getting a judgment, and getting paid. They are separate pieces of work, and the second one is where most of the money is won or lost.
General information, not legal advice. This page sets out how the law generally applies. It does not take account of your circumstances, and you should get advice about your own situation before acting on it. The official sources this page is written from are listed on it; where they differ from anything here, they are the authority.
Chasing a debt, or being chased
If you are owed money, the useful question is not whether you are right. It is whether you can prove the debt and whether the other side can pay it. A debt that is documented — an invoice, an agreement, a record of delivery, a history of part payments — is usually straightforward to establish. A debt that exists only as an understanding between two people is a different matter, and it is better to know that before you file anything.
Recovery has stages, and each one costs more than the last. A letter of demand is cheap and resolves a great many debts on its own. Filing a statement of claim costs a filing fee and takes time. A defended hearing costs considerably more. Enforcement costs more again and can fail entirely if there is nothing to enforce against. Matching the stage to the size of the debt is most of the skill in this work.
If you are the one being chased, do not ignore the paperwork. A statement of claim is not a letter. Once it is served, a defence has to be filed within the time the Uniform Civil Procedure Rules 2005 (NSW) allow, and if it is not, judgment can be entered against you in default — which can affect your credit and can be enforced against your property or your wages. There are ways to deal with a default judgment after the fact, but they are harder than filing a defence on time.
There are also real defences to debt claims, and they are worth taking seriously: the goods or services were never delivered, they were defective, the amount is wrong, the debt was already paid, the agreement was with somebody else, or the limitation period has expired. A claim being made against you is not the same as a debt being owed.
What the work actually is
Establishing the debt before demanding it
What the debt is for, what document creates it, what has been paid, and whether interest or a contractual charge applies. A demand for the wrong amount, or against the wrong entity, is worse than no demand at all.
A demand that is actually useful
Most debts that are going to be paid are paid after a proper letter. Our guide to what a letter of demand should and should not say covers what belongs in one and the lines that create problems later.
Filing and serving correctly
Drafting the statement of claim so it pleads the facts the Uniform Civil Procedure Rules 2005 (NSW) require, filing it in the right court, and serving it in a way that will withstand being challenged. Service is the step most often done badly, and a judgment built on bad service is fragile.
Judgment, including in default
Where no defence is filed within time, applying for judgment in default. Where a defence is filed, working out whether the matter is worth defending against, negotiating, or preparing it for hearing.
Enforcement, chosen deliberately
The Civil Procedure Act 2005 (NSW) provides several enforcement methods, including against property, against wages and against money owed to the debtor by someone else. Which is worth using depends on what the debtor actually has, which is why the information step comes first.
Defending a claim, and dealing with default judgment
Filing a defence in time, raising a genuine dispute about the amount or the goods, or applying to set aside a default judgment where one has already been entered against you. The sooner that is done, the better it usually goes.
Questions people ask first
How long do I have to chase an old debt?
Section 14 of the Limitation Act 1969 (NSW) sets six years for a cause of action founded on contract, running from the date the cause of action first accrues. For an unpaid invoice that is generally when payment fell due. Certain things can affect when time runs, including an acknowledgement or a part payment, so an old debt is worth asking about rather than writing off.
I have been served with a statement of claim. What happens if I do nothing?
Judgment can be entered against you in default once the time for filing a defence has passed, without a hearing and without you being there. That judgment can then be enforced. If you dispute the claim, file a defence within the time stated on the documents you were served with. If a default judgment has already been entered, there is a process for applying to set it aside, and it is a great deal easier if you move quickly.
Can I add interest and my costs to what I am owed?
Often some of both. A court has power to award interest on a debt, and a contract may provide for interest or recovery costs in its own terms. Costs are at the court’s discretion and recovery is usually partial. What can be claimed depends on the agreement and on which court the matter is in.
What if the debtor simply has no money?
Then a judgment may be worth very little, and that is worth knowing before you spend anything. The rules allow a judgment creditor to require information about a debtor’s financial circumstances, and searches can tell you something about a company beforehand. We would rather advise you not to start than run a claim that cannot be recovered.
The work they did was defective. Do I still have to pay?
Not necessarily the full amount. A dispute about whether goods or services were as agreed is a real defence to a debt claim, and where the supply was to a consumer the consumer guarantees in the Australian Consumer Law may also apply. It is a defence to be raised properly in a filed defence, not by not paying and waiting to see what happens.
Should I use a debt collector instead?
For a simple, undisputed debt a collection process may be enough. Where the debt is disputed, where the amount is significant, or where court proceedings are likely, the work is legal work and it is better done as legal work from the start. A badly worded demand can prejudice a claim that would otherwise have been straightforward.
Is a small debt worth going to court over?
Sometimes, and the Local Court’s Small Claims Division exists for exactly that: a simpler, less formal procedure for smaller claims. Even so, the filing fee, the time and the risk of not recovering have to be weighed against the amount. We will tell you when the commercial answer and the legal answer differ.
What to bring
A debt is proved with paper. Almost every early question is answered from the file rather than from memory.
- The invoices, and the agreement, quote or terms they were issued under.
- Proof that the goods or services were supplied: delivery dockets, timesheets, sign-offs, photographs.
- A statement of the account: what was charged, what was paid, what is outstanding.
- Every reminder, demand and reply, including any promise to pay or part payment.
- The debtor's full legal name and whether it is a person, a company or a trust.
- Any statement of claim, default judgment or enforcement document you have been served with, and the date you received it.
- Anything the other side has said about why they are not paying.
- What you know about their assets, employment or other business.