16 Aug Having Trouble Getting Paid? Here Are The Top 12 Ways To Recover A Debt
Business is all about cash flow and managing your debtors and creditors.
Of course, this is easier said than done, and it’s often hard to predict whether a debt will become bad or irrecoverable. If there is any prospect of recovering the debt at some stage, for example if the debtor owns real estate or is due to receive an inheritance or a compensation payout, then there are many options available to secure or enforce payment of the debt.
Here are the top 12 ways to get paid:
1. Acknowledgment of Debt
Make sure the debtor acknowledges the debt in writing and provides some security to honour the debt, for example the right to lodge a caveat over land the debtor may own. If the debt is disputed, the written acknowledgment can be produced as evidence in Court.
2. Notice of Claim
If the debt is not disputed, whether or not it is acknowledged, but for whatever reason the debtor refuses or fails to pay, you need to serve a Notice of Claim or Intention to Commence Proceedings against the debtor before you issue debt recovery proceedings. As often as not, the debtor will respond by paying or making arrangements to pay.
3. Enforceable Payment Agreement
You can take the matter one step further by requiring the debtor to enter into an agreement to pay the debt in instalments, via a Form 1A Enforceable Payment Agreement under the Magistrates Court Rules. If the debtor defaults in two payments then you can issue proceedings for the balance, and obtain a judgment by default against the debtor (that is, the debtor will not be able to defend the Claim).
4. Suing and getting a judgment
If the debtor is not interested in entering into an Enforceable Payment Agreement, or does nothing, or disputes the debt, the only alternative is to issue debt recovery proceedings and obtain a judgment by default, or a judgment by consent of the debtor, or a judgment by the Court at the conclusion of a trial if the debt is disputed all the way through. A judgement will generally induce the debtor, now called a judgment debtor, into paying the judgment debt or making arrangements to pay.
5. Enforcing judgment
If you have a judgement and you do not think the debtor will pay, you can commence enforcement proceedings immediately after judgment or at any stage for a period of 6 years thereafter. A court judgment will appear on the debtor’s credit file and will generally prevent them from being able to obtain credit or borrow money for some years. Some debtors may want to clear up their credit record and the most obvious way of doing so is to immediately pay the debt.
6. Investigation Summons
The mere fact of a judgment may sometimes be of no use against some debtors. There are a number of enforcement procedures that can be initiated. If the debt is less than $10,000 you can apply to the Court to bring the debtor before the Court on an Investigation Summons whereby the Court investigates the debtor’s capacity to pay the debt by enquiring into the debtor’s financial position. This usually results in an order that the debtor pay the debt by instalments. If the debt is over $10,000 and the debtor owns real estate, you may be able to ask the Court to issue a Warrant of Sale of that real estate (see further below).
7. Examination Summons
If the debtor fails to comply with two payments under the order made at the Investigation Hearing, you can apply for an examination of the debtor where the debtor will be asked to explain why he or she has not complied with the order from the Investigation Hearing. Depending on whether there has been any change in the debtor’s financial circumstances, further orders can be made on this occasion for the payment of the debt by instalments or other arrangements can be made. If the debtor fails to attend the Investigations or Examination Summons hearing, you may apply to the Court for the debtor to be arrested (that always gets them to take notice!).
8. Warrant for sale
If you are aware that the debtor owns real estate, or valuable, non-essential personal property (for example, a boat or vintage car) a warrant for sale of the relevant asset can be issued. Warrants of sale can take quite a while to be carried out, and they can be quite costly for the creditor, but they can also be an effective way to get the debtor thinking about what they should do to pay the debt.
9. Charging order
If you have a judgement in your favour and the debtor owns land, then you can apply for a charging order which allows the Court to charge land owned by a debtor. This means that the debt will be registered on the debtor’s title until the judgment debt and costs of the charging order are fully discharged. If the property is sold then it will be subject to the charge and the judgment creditor will have priority over the owner (but not, for example, a mortgagee) for the proceeds of the sale. Charging orders are very effective if the debtor is about to sell their property, less so if they are sitting on their property.
10. Garnishee order
Everyone has a bank account, including judgment debtors. It is possible to seek an order requiring direct payment from the debtor’s bank. This is very handy where the debtor runs a business or if you are aware that the debtor expects to receive monies, such as an inheritance or compensation payout. Be aware, though, that salary payments can only be garnisheed with the consent of the debtor and social security payments cannot be garnisheed.
11. Chronic debtor declaration
If you have had the misfortune of having a debt incurred by someone who is a chronic debtor, that is, someone who has a history of enforcement action in the last 12 months for other debts, and has no assets and cannot afford to repay the current debt within 12 months by instalment, you may apply to the Court to declare the debtor a chronic debtor. This means the Court will make one order to deal with all of the debtor’s debts and fines and you as creditor will be entitled to share in any payments collected by the Court from a chronic debtor. This is sometimes better than nothing.
If the debt is for more than $5000 you may bring bankruptcy proceedings against the debtor. If a person is declared bankrupt then all of their income above a certain level and property (with some exceptions, such as their principal vehicle, personal effects, tools of trade etc) vests in their trustee in bankruptcy. You may then lodge proof of your debt with the trustee in bankruptcy to receive a share of the profits from the sale of the debtor’s property if the debtor owns anything of value. Essentially, bankruptcy takes the problem of the debtor’s debts out of the hands of the debtor and into the hands of their trustee, usually a insolvency practitioner, with whom you can liaise thereafter to see if all or some of your debt can be paid.
There are many ways to recover a debt, and some ways are better than others in terms of the prospects of success and cost.
If someone owes you money and you are concerned that you will not get paid, call us immediately on 8276 7955 and we can discuss what debt recovery procedure is best for you and your debtor.