How to start the debt recovery process in NSW

Whether from a loan, unpaid invoices or a critical life experience, everyone could go into debt at some point in their lives. Hence, as a lender or creditor, you must know when to exercise your right to collect and start the debt recovery process in NSW.

Growing consumerism and the need for social acceptance are fueling people’s desire to buy excessively. It could be the latest gadgets, a faster car, or a luxury bag—anything to show that they are better off. Unfortunately, not everyone has the financial capacity to afford such extravagance. Thus, some people go into debt and even remain in debt for a long time.

Moreover, today’s volatile economy can render anyone a line of credit even without a business or job in an instant. The loss of income source significantly reduces a person’s financial capacity to make any transactions. Hence, they may not have capacity to make any repayments until they find a new source of income.

Regardless of the reason for owing you money, the debtor is still responsible for paying the debt. However, what happens if the debtor becomes irresponsible and disregards making any attempt to pay? What’s worse, what if they suddenly disappear or avoid communicating with you about their debt?

As the lender or creditor, you have the right to collect the money you are owed. Moreover, there are several legal actions that you can do when exercising your right to collect the debt. Therefore, you should know what to do to start the debt recovery process in NSW.

Starting the debt recovery process in NSW

Debt recovery is collecting money owed by a debtor—e.g., person, people, or entity. You can make a claim to repay the debt. However, there are several steps that you must consider when starting the debt recovery process in NSW:

1. Establish Direct Communication

Rather than taking immediate action, it is best to try contacting the debtor first. In doing so, you can confirm who your debtor is before taking the matter to court. More importantly, ensuring the identity of the debtor can help you avoid any dispute to your claim.

Establishing direct contact also helps you find out why they were not able to pay their debt. You can also use this opportunity to negotiate a flexible and sustainable repayment plan—in consideration of the debtor’s circumstances.

However, you must not harass your debtor into making repayments or threaten them with legal action. There are Commonwealth consumer protection laws relevant to debt collection that you must comply with when contacting your debtor. This includes prohibition from unacceptable or unconscionable conduct towards debtors when performing debt collection activities.

Therefore, when making contact—whether by phone, email, social media, or in-person—remember to:

Protect the privacy of your debtor.
Be mindful when speaking to a debtor at his workplace to avoid humiliating them.
Not disclose information about the debtor’s spouse, partner, and family.
Identify yourself and the purpose of making contact.
When using social media, voice mail or messaging, carefully consider the channel and potential audience.
Only use the channel preferred by the debtor and avoid using a channel they specifically requested not to use.
Provide basic information about the debt.
Also provide your contact details.
Not misrepresent your identity.
Make reasonable enquiries as to their financial position to determine if they can make sustainable or flexible repayments.
Encourage the debtor to seek advice from a financial counsellor if they cannot make repayments.

2. Issuing a Letter of Demand

If the debtor did not respond to your attempts at establishing a meaningful communication, then you may send a letter of demand. A letter of demand is a formal request for the debtor to pay the debt within a certain period.

A letter of demand warns the debtor that you may start the appropriate legal proceedings in case of non-payment. Moreover, it provides the debtor with an opportunity to pay, so you can avoid the expensive legal proceedings. More importantly, it is evidence that you gave the debtor enough time to pay and settle the debt without going to court.

Therefore, when making the letter of demand, make sure to:

Inform the debtor that they owe you money.
Describe what the debt is for and attach evidence, e.g., invoices.
Include the amount of the debt or the outstanding.
Tell the debtor when the debt should have been settled.
Set the due date for them to settle the debt.
Specify how the repayments should be made, e.g., cash, bank deposit.
Stress that you will proceed with legal action if the debt has not been repaid on time.
Let the debtor know they may incur liabilities, e.g., interest on the debt.
Avoid including arguments or allegations against the debtor.
Consider the best way to send the letter of demand, e.g., registered post or email.

After sending out the letter of demand, provide the debtor with sufficient time to respond. You may also consider engaging an alternative dispute resolution to settle the dispute more amicably. However, if the debtor did not respond nor make any attempt to contact you, then proceed with the legal action.

3. Commence with Legal Proceedings

Although it is best to resolve the dispute without the legal proceedings, sometimes going to court is the only way to recover a debt. You have six (6) years to start a court case and recover a debt. This starts from when the debt was made, you received the last repayment, or the debtor last acknowledged the debt.

To start legal action, you need to complete a Statement of Claim and lodge it to the appropriate court. Determining which court in NSW has jurisdiction will depend on the amount of the debt:

Small Claims Division of the Local Court if the claim is for up to $20,000
General Division of the Local Court if the claim is for up to $100,000
District Court or the Supreme Court if the claim is for over $100,000

Once you have filed the Statement of Claim, the debtor will have 28 days to respond by filing their defence. However, if the debtor failed to file a defence within the timeframe, then they will be in default of the proceedings. Then, you may apply for a default judgement, thus enabling the Court to enter judgement against the debtor.

However, legal proceedings can take a long time and may be very costly. Moreover, even if the judgement is in your favour, there is no guarantee you will recover your debt. Therefore, make sure you have received sufficient legal advice before deciding to go to court.

Conclusion

The global economy is still evolving due to the impacts of the pandemic. With ever-changing markets also come changes in the debt collection industry. Moreover, consumer laws and compliance regulations also continue to undergo significant changes to meet changing circumstances. Thus, if you are considering starting debt recovery in NSW, it is best to seek legal advice first.

VC Lawyers provides practical legal advice to help you determine the best course of action for a successful debt recovery. Our team of solicitors and paralegals has extensive experience and in-depth knowledge of the debt collection process. We can help you prepare the letter of demand to ensure you comply with the debt collection guidelines.

Our solicitors also have sufficient experience dealing with matters on loans and mortgages, and commercial and retail leases. Hence, we can provide advice from all angles, whilst making sure your best interests have been carefully considered.

Talk to us to find out how we can help you start with your debt collection matter.

NB: This blog post is neither a legal advice nor intended to be such, and is only for general information. The same should not also be taken as a financial or commercial advice. The reader must personally consult their professional adviser/s on the contents of this blog post. VC Lawyers is not liable for any loss or damage, direct or consequential, as a result of the reader’s or a third person’s misconstruction of the wordings or use/misuse of the contents of this blog post.