By Pinar Acay
When a debtor fails to pay money owed to a creditor, recovering that debt can become a difficult and time-consuming process. In Victoria, there are several legal and procedural avenues available to help individuals and businesses recover outstanding debts. Whether you are a sole trader, small business or large organisation, understanding your debt recovery options can assist in maximising your chances of a successful outcome while minimising legal costs and delays.
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Initial Steps: Negotiation and Demand Letters
Before initiating formal proceedings, it is usually recommended to attempt an informal resolution. Direct communication with the debtor (via phone, email or in person) can sometimes result in a payment plan or settlement without the need for legal action.
If informal communication fails, a letter of demand is the next step. This is a formal written request for payment that outlines:
- The amount owed;
- The due date for payment;
- The legal basis for the debt; and
- Potential legal consequences of non-payment.
A well-drafted letter of demand from a solicitor can often prompt repayment or negotiation.
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Commencing Legal Proceedings
If the debtor does not respond to a letter of demand, you may choose to initiate court proceedings. In Victoria, debt recovery matters are typically heard in the Magistrates’ Court if the amount in dispute is under $100,000. For larger claims, proceedings may be issued in the County Court or Supreme Court of Victoria, depending on the complexity and amount involved.
The general process involves:
- Filing a complaint or originating process with the relevant court;
- Serving the complaint or originating process on the debtor; and
- Waiting for the debtor’s response (defence or counterclaim).
If the debtor fails to respond, you may be able to apply for a default judgment, which allows you to enforce the debt without a contested hearing.
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Enforcing a Court Judgment
Obtaining a court judgment is only part of the process. If the debtor still refuses to pay, you will need to enforce the judgment. Several enforcement options are available in Victoria, including:
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Warrant to Seize Property
This allows the Sheriff’s Office to seize and sell the debtor’s personal property to recover the owed amount. It can be effective if the debtor owns valuable assets.
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Attachment of Earnings Order
If the debtor is employed, the court can order their employer to deduct a portion of their wages and pay it directly to you.
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Attachment of Debt (Garnishee Order)
This enables the recovery of funds directly from a third party who owes money to the debtor—often a bank account.
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Summons for Oral Examination
This compels the debtor to appear in court and disclose financial information under oath. It can help determine the most effective method of enforcement.
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Bankruptcy and Winding Up
If the debt is significant and enforcement has failed, you may consider bankruptcy (for individuals) or winding up (for companies).
Bankruptcy: You can issue a bankruptcy notice if the debtor owes at least $10,000 and has not complied with a court judgment. If they fail to comply within 21 days, you may petition the Federal Court of Australia or the Federal Circuit and Family Court of Australia for a sequestration order to make them bankrupt.
Winding Up: For corporate debtors, a creditor who is owed at least $4,000 can serve a statutory demand. If unpaid within 21 days, this is evidence of insolvency and may justify an application to wind up the company through the Supreme Court of Victoria, the Federal Court of Australia, the Federal Circuit and Family Court of Australia.
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Alternative Dispute Resolution (ADR)
In some cases, mediation or another form of alternative dispute resolution process may be an appropriate alternative to litigation. ADR can offer a faster, more cost-effective way to resolve disputes without a formal court process. It is also often less adversarial and can preserve business relationships.
How a Lawyer Can Help
Navigating debt recovery in Victoria involves a range of procedural and legal considerations. A lawyer can assist by:
- Drafting effective letters of demand;
- Advising on the best legal strategy;
- Managing court processes and enforcement actions;
- Representing you in complex matters such as bankruptcy or corporate insolvency.
At Eales & Mackenzie, our experienced commercial litigation and debt recovery team is here to help you recover what you’re owed—efficiently and legally. Contact us today on (03) 8621 1000 or (03) 9331 1144 for tailored advice on your debt recovery options.
