Recovery of debts

Commercial | Print Article

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You should see your lawyer first if you are uncertain how to recover an outstanding debt.

‘Simple debts’ and ‘claims’

There are two sorts of debts:

  • Those where the fact and the amount of the debt are indisputable, e.g. the price of an item bought at a store and not paid for.
  • Those where there may be a dispute about either the fact or the amount of the debt, e.g. a claim resulting from a car accident.

Let’s call the first sort ‘simple debts’ and the second sort ‘claims’. Your lawyer can determine what category your debt falls into and advise you what to do next and will give you professional advice on the best action to take and, if possible, help you to avoid it happening again.

Simple debts

There will always be some people who do not pay their debts until they are forced to do so. People become debtors for many reasons but there are three main categories of debtors:

‘Unfortunates’ – victims of the general economic climate or of sheer bad luck who fall into debt through no fault of their own.

‘Irresponsibles’ – people who are not dishonest but who are sometimes irresponsible or unrealistic in their attitude to obtaining credit, buying goods and paying bills.

‘Hard Core Debtors’ – people who know just how the system works and how to take advantage of it.

The best method of recovering a simple debt depends greatly on the category to which your debtor belongs. Accurate up-to-date information about the debtor is vital to successful debt recovery.

Prevention of debt

Prevention is always better than cure. It is preferable to have no debtors at all than to have a successful debt recovery system.

Some tips for retailers

  • Remember it is not the number of sales that matters, but the amount of cash in the till at the end of the month.
  • Maintain your own credit-check system including full customer records.
  • Make full use of existing outside credit-check systems and agencies.
  • Do not sell on credit to known bad debtors.
  • Take a responsible attitude to the giving of credit generally. Your lawyer can advise you on credit check procedures and credit systems. It is in your best interests to discourage customers from spending beyond their means.
  • You may think that the quickest way to recover the unpaid sale price of goods may be to repossess and resell them. Normally, unless the goods are sold on hire purchase, you cannot do this because the buyer owns the goods as soon as he or she takes possession of them whether they are paid for or not. There are, however, ways of retaining the right to repossess goods by providing for the buyer to become owner only when the goods are fully paid for. You should contact your lawyer to review your sales procedures and documentation.

A tip for individuals

Be wary of taking personal cheques from strangers unless they provide satisfactory identification.

Self help

Often a direct approach by you to the debtor, either by letter or personally, will be effective, particularly if the debtor is in the ‘unfortunate’ category and would prefer to pay the debt as quickly as possible if only he or she had the money. In that situation, you should be prepared to make an arrangement for payment of the debt on a ‘drip-feed’ basis, e.g. by weekly or fortnightly automatic payments from the debtor’s bank account. This will often save you money in the long run.

How long will it take?

The recovery of debts can be very quick, e.g. the debtor may pay after receiving a ‘lawyer’s letter’ demanding payment. It can also take a long time. Recovery through the court system can be a frustrating, drawn-out process.

How long it takes depends largely on:

  • The circumstances and attitude of the debtor.
  • The court system.

Many of the court procedures have been designed partly to protect the ‘unfortunates’ from arbitrary action by creditors. Some ‘irresponsible’ and ‘hard core’ debtors can take advantage of the safeguards built into the system and cause delays. At each stage of the court process, documents must be filed in the court and served on the debtor. Processing and service of the documents is usually the responsibility of the court staff and is affected by their work load. In addition, the courts usually place greater importance on, for example, criminal and family court matters. Sometimes there is not enough court time available to deal with debt recovery matters.

If at any time the debtor disappears, the whole process stops until he or she can be found again.

How much will it cost?

Although it is very hard to predict how difficult it will be to recover any particular debt, your lawyer can give an estimate of the likely cost.

Filing fees must be paid to the Court Registrar at every stage of the court process. Your lawyer will usually ask you for these court fees in advance. You are entitled to recover them from the debtor later on but sometimes you may not be able to do so.

Some debts are simply not economic to recover, i.e. the cost of recovering them may be even more than the amount of the debts. You then have to decide whether to proceed.

‘Claims’

Different considerations must be taken into account when dealing with a ‘claim’. For example the debtor is much more likely to defend the claim and may make a ‘counter claim’ against you. It is more likely that there will be a full court hearing. Your lawyer will advise you how best to resolve the claim and about all the factors you need to take account, including:

  • The strength of your claim.
  • Possible defences to your claim.
  • Alternatives to going to court.
  • Possible ways of negotiating a settlement.
  • Whether you will need to pursue your claim in the District Court or High Court and the differences between the courts.
  • The evidence you will need in court to support your claim.
  • How long it is likely to take.
  • How much it is likely to cost.

Disputes Tribunal

Claims for smaller amounts may be resolved through the Disputes Tribunal, which has very wide powers to settle ‘claims’. The Tribunal is NOT a debt collection service. It is there to help resolve genuine disputes between people, not to collect ‘simple debts’. Lawyers are not involved in Disputes Tribunal proceedings. The powers of the Disputes Tribunal and how it operates is fully explained in booklets available at any District Court office and from the local Citizen’s Advice Bureau. Your lawyer will advise you whether your claim can or should be dealt with by the Disputes Tribunal.