Recovering unpaid debts – suing for unpaid debt is easier than you think
Many business owners are reluctant to sue a bad paying customer but in reality it’s a lot easier than you think.
The main reasons for avoiding the option to sue include the perception that it’s expensive, involves going to court, giving evidence and being face-to-face with the defendant.
The good news is that if you have a claim for what is known as a liquidated sum, the legal process is fast and does not involve a court hearing.
The good news is that if you have a claim for what is known as a liquidated sum, the legal process is fast and does not involve a court hearing. A liquidated sum is a precise amount which can be easily calculated, such as a debt.
Default judgements
Although costs vary across the states, each state allows for default judgments. A default judgment is when judgment is given in your favour without a trial. The defendant will owe you for the amount of the judgment debt.
In our own experience, over 90% of legal actions for unpaid accounts result in default judgments.
Costs
As an example of the likely costs to launch action, the fixed rate fully inclusive cost charged by can be $1765 for a debt of between $5000 and $10,000.
When the court makes the judgment on a case, it will also make an order for costs to be paid by the defendant, which will usually be about 70% of the actual costs payable by you. The order will also include interest at a prescribed rate, which is well above bank interest rates. This will be calculated from the date payment was due and will continue until the payment is made in full.
Even if the customer lodges a defence – which means that a default judgment cannot be taken out – claims tend to be settled fairly quickly.
Legal enforcement
Once judgment is obtained, you can then proceed directly to legal enforcement.
Using Victoria as an example, the main enforcement actions are:
- Bankruptcy: Can only be taken out against an individual and the total judgment obtained must exceed $5000.
- Seizure and sale of real estate: If the debtor has equity in real estate, you can ultimately arrange for the sheriff to sell the equity they have in the house.
- Attachment of wages (garnishee): As long as the debtor works and you know where they work, attachment is an order taken out against the employer, requiring them to deduct a specified amount each payday, in satisfaction of judgment.
- Warrant of seizure: This is an order from the court to the sheriff, directing them to seize chattels owned by the debtor and to sell them, in order to satisfy the judgment.
- Summons for oral examination: This compels the debtor to attend court, to be examined under oath about his financial position. If they fail to attend, it is likely that an order will be made for their arrest.
Roger Mendelson, CEO of Prushka Fast Debt Recovery
