I am regularly asked this question. I thought I would write what my usual response is. Whether debt recovery is worth it from a commercial perspective (cost vs. prospects of recovery) usually depends on three factors.
1. The debtor;
2. The type of claim you have against the debtor; and
3. The costs involved to recover from your debtor.
A significant problem with any of these three factors (including whether the debt is disputed by the debtor) will make the claim much more costly and usually, not worth pursuing from a commercial perspective. However, if the reasons are not commercial, a debt may still be worth pursuing in some instances.
Significant problems with the debtor and claim are usually obvious such as:
- the Debtor has moved and I don’t know where he/she is
- the Debtor is on Centrelink payments
- I don’t have the debtor’s last name (or can’t spell it)
- I have no signed written agreement to prove they owe the money
- The money I lent was for drugs
- The money was cash and I lent it to them to gamble with at Crown on his/her birthday. They haven’t paid me back because they say it was a present, but it wasn’t.
- I have no other proof of my claim (no written documents) evidencing the transaction.
I regularly sue debtors for clients and I have regularly sued for debts less than $5,000. Generally good claims have the following attributes:
- you know where your debtor is
- your debtor has assets and income
- you have a signed written agreement or guarantee
- you have rendered an invoice(s)
- you have sent statements
If you have a good claim, and a good debtor, yes, I will say the debt is worth pursuing. How you pursue it is another question? Briefly, you could pursue payment of the debt from the debtor by:
1. Doing it yourself – in your local Small Claims Tribunal (if in Victoria such as VCAT);
2. Engaging a debt collection agent (google it). We are not a debt collection agent; or
3. Engaging a professional lawyer (like us).
Being lawyers who work frequently in this area, we recommend option 3. Sometimes we recommend option 1, particularly where you might be confident enough, have good evidence and appear capable enough and have the time and appear wanting to handle it. If the debt is not worth it, we frequently turn people away.
If you have a good claim but don’t have the time, desire or intent to deal with the debt (or person) again – we are also able to take care of it for you. The typical costs for a debt of this amount are set out in our Legal Costs page. Sometimes a debt collection agency can chase the debt and will charge you no fee for non-recovery. Beware though, you may get what you pay for (nothing). Lawyers are professionals, highly regulated, and have onerous professional obligations to you and to the Court. Of course, we recommend you always engage a lawyer with knowledge in debt collection to recover any debt of any size. You might pay a little more for the service but in the end you will have peace of mind knowing you have done your best to recover the debt using a professional.