Suing for an unpaid debt in NSW: the Local Court process

If a letter of demand has not worked, the next step to recover a debt is usually court. For most debts in NSW, that means the Local Court. This guide explains the process from start to enforcement.

Before you sue

Suing is a tool, not the first move. Before you file, make sure the debt is clear, due, and provable, and that a letter of demand has given the other side a final chance to pay. A court expects you to have tried to resolve it, and most debts settle before a hearing.

A point we make to every client about to sue. Winning a judgment and actually getting paid are two different things. Before you spend money suing, think about whether the debtor can pay. A judgment against a person or company with no assets is an expensive piece of paper. It is worth a quick assessment of recoverability first.

Which court

The NSW Local Court hears civil claims up to $100,000. Claims up to $20,000 are heard in the Small Claims Division, which is quick, informal, and designed to be used without a lawyer. Claims over $20,000 and up to $100,000 are heard in the General Division, which is more formal. Claims above $100,000 go to the District Court, and larger claims again to the Supreme Court.

Watch the time limit

For most simple contract debts in NSW, you have 6 years from the date the debt became due to start proceedings, under the Limitation Act 1969 (NSW). After that, the debt is generally statute barred and the court will not help you recover it. A part payment or a signed written acknowledgment of the debt can restart the clock, but do not rely on that. If a debt is getting old, act.

Step 1: The statement of claim

Proceedings start with a statement of claim. It sets out who owes what, for what, and why. It is filed with the court and served on the debtor. Getting the statement of claim right matters, because it defines your case.

Step 2: The defendant's response

Once served, the defendant has a set period, usually 28 days, to file a defence. What happens next depends on their response.

If they do not respond in time, you can usually apply for default judgment, which is judgment in your favour without a hearing. In our experience a large share of straightforward debt claims end in default judgment, because the debtor simply does not respond. If they do file a defence, the matter proceeds towards a hearing, with steps along the way such as the exchange of documents and often a court-ordered attempt to settle.

Step 3: Hearing and judgment

If the matter is defended and does not settle, it goes to a hearing, where each side presents its case and the court decides. If you succeed, the court gives judgment for the amount owed, and usually interest and some costs.

Step 4: Enforcement

A judgment is not the end if the debtor still does not pay. You then enforce it. The main enforcement options in NSW include a writ to seize and sell the debtor's property, a garnishee order to take money from their wages or bank account or from someone who owes them money, and an examination to find out what they own. For a company debtor, a judgment debt can also support a statutory demand and, ultimately, a winding up application.

This is where the earlier point about recoverability comes home. Enforcement works well against a debtor with income or assets, and poorly against one with neither. Choosing the right enforcement tool for the debtor's situation is where good advice saves wasted cost.

How we help

We handle debt recovery end to end, from the letter of demand through to enforcement, and we are candid early about whether a debt is worth pursuing. For straightforward debts, the process is often quicker and cheaper than people expect, especially where the debtor does not defend. For larger or defended claims, we map out the likely cost and the prospects before you spend.

Frequently asked questions

How much can I claim in the Local Court? Up to $100,000, with claims up to $20,000 in the Small Claims Division.

How long do I have to sue for a debt? Generally 6 years from when the debt became due, though acting sooner is always better.

What is default judgment? Judgment in your favour without a hearing, available where the debtor does not respond to the statement of claim in time.

I have a judgment but they still will not pay. What now? You enforce the judgment, through options such as a writ against property, a garnishee order, or, for a company, a statutory demand.

Keep reading

• Dispute resolution
• Letter of demand: when and how to send one
• Responding to a statutory demand: what to do and the deadline

This article contains general information only and is not legal advice. For advice about your situation, please contact us. Liability limited by a scheme approved under Professional Standards Legislation.