Recovering a debt in NSW: from demand letter to court

Step 1: Gather your evidence

1. The contract, quote, invoice or loan agreement.
2. Proof that you supplied the goods or services, or paid the money.
3. Any payments made, and the date of the last payment.
4. Any written acknowledgement of the debt by the debtor.
5. Emails and messages about the debt.

Check who you contracted with. A company and its director are different parties.

Step 2: Send a letter of demand

A letter of demand asks the debtor to pay.

It should state the amount owed and why, when payment was due, the date by which you require payment, and what you will do if it is not paid.

Keep it factual and measured. It can be used as evidence later.

A demand must stay within your legal rights. A solicitor's letter must not threaten criminal proceedings, or a complaint to an authority, to obtain payment of a civil debt. Solicitors are bound by conduct rules on this.

Step 3: Choose the right court

1. Local Court, Small Claims Division: claims up to $20,000.
2. Local Court, General Division: claims over $20,000 up to $100,000, or up to $120,000 in some limited circumstances.
3. District Court or Supreme Court: claims above those amounts.

Filing and service fees apply in each court.

Step 4: File a statement of claim and get judgment

You start a claim by filing a statement of claim and serving it on the debtor.

If the debtor does not file a defence in time, you may be able to apply for default judgment.

If the debtor defends, the claim goes to a hearing.

After judgment, you must usually wait until the time given in the judgment has passed, often 28 days, before you enforce it.

Step 5: Enforce the judgment

A judgment is an order to pay. If the debtor still does not pay, enforcement options include:

1. An examination notice, which requires the debtor to give details of their income, expenses and assets. If they do not respond, you can ask for an examination order.
2. A writ for the levy of property, which lets the sheriff seize and sell the debtor's property.
3. A garnishee order, which takes money from the debtor's wages or bank account, or from someone who holds money for them.
4. Bankruptcy, for an individual, where the judgment debt is at least $10,000. A bankruptcy notice must be based on a final judgment no more than six years old. The debtor has 21 days from service to comply.

A judgment does not guarantee payment. If the debtor has no income or assets, you may recover nothing.

Debts owed by a company

For an undisputed debt of at least $4,000 owed by a company, you can serve a statutory demand under the Corporations Act 2001.

The company has 21 days after service to pay or to apply to set the demand aside.

If it does neither, it is presumed to be insolvent, and you may apply to have it wound up.

A statutory demand is not suitable where the debt is genuinely disputed. Get advice before you serve one.

Common questions