Have a debtor that won’t respond to your emails/calls? Here are five factors to consider before jumping into litigation to recover that debt.
Do I have a good case?
Determining whether you have strong prospects of recovery is assessed on a “case by case” basis. This will depend on a number of factors, including:
- what assets the debtor has;
- how large the debt is; and
- whether or not you are within the statutory timeframes.
Can I settle this outside of Court?
Although settling a matter outside Court is often the ideal solution, it is not always the most cost effective. Have you done any of the following:
- Sent letters of demand?
- Called the debtor?
- Allowed for a time extension?
There is a balance that must be struck between allowing debtors in financial difficulty time to pay and letting things drag on unnecessarily. Depending on the circumstances of the matter, it may be beneficial for a Letter of Demand on your behalf to be sent by a solicitor – this often prompts payment or a structured debt agreement. However, in cases where you have already made a number of wasted attempts at diplomacy, sometimes settling out of Court is simply not possible and the longer you leave the matter unattended the more difficult it can become to get a result.
What outcome do I want?
It is vital that you establish what outcome you want from the situation.
In many debt recovery matters, the debtor’s capacity to pay will determine ‘the best’ outcome. For example:
Alan owes Brenda a sum of $10,000 for a business loan with a fixed amount of $2,000 in interest to be paid within 12 months of establishing the loan. Alan has failed to repay the loan within 12 months and the entire amount is outstanding. Unfortunately, Alan’s business has not been performing well and faces liquidation.
Brenda can sue Alan to recover the $12,000 debt.
However Alan has advised Brenda that if she enforces the debt in full, he will be unable to pay and will be forced to appoint a liquidator.
Alan offers to re-pay Brenda 50% of the debt upfront and the remainder on a payment plan of $1,000 per month.
Brenda has two options:
- She can enforce the entire debt and stand in line with any other debtors. If she takes this course whilst she might recover some money in the short term, it is likely that Alan’s business would be wound up, incurring additional fees from liquidators and lawyers and the full amount of the debt may not be recovered.
- She can accept Alan’s proposal and receive a part payment now with the prospect that she eventually receives the entire amount if he sticks to the repayment plan.
In this circumstance the second option may be the best outcome, but may require Alan to submit additional documents to provide the nature of his financial position.
Other factors that need to be considered include whether the debtors are a continuing client or referral source as well as potential legal costs that might be incurred (and not recovered) if you intend to proceed.
Am I in time?
In order to bring an action against a debtor to recover the debt, you must do this within a specific limitation period. For the majority of matters in Queensland a creditor has 6 years from the date of the debt (usually due date on the invoice) to bring an action against the debtor. If you do not file a claim within this limitation period a Court will not allow the claim to proceed.
Should I use a Lawyer?
Although some simple reminder letters and negotiations can often resolve the majority of unpaid debts, often lawyers are the best option when dealing with debtors that ignore letters and phone calls or simply refuse to pay.
In many cases legal fees can be on-charged to the debtor and added to their debt
When engaging a lawyer, they can:
- Review your matter and advise on your prospects of recovery;
- Send a letter of demand on your behalf (which often is enough to prompt a debtor to pay)
- Arrange a structured debt agreement that can streamline enforcement proceedings in the event of further default; and
- Take some of the stress and worry away in dealing with aggressive or belligerent debtors.
If you would like to discuss a debt owed to you? Give us an obligation free call on 07 3211 2233 or visit www.btlawyers.com.au.
BTLawyers – Brilliant Thinking, better outcomes.