Debt collection refers to the process of recovering money that is owed by a person or business who has failed to pay a debt on time. It can involve anything from an unpaid invoice or loan to a breach of contract or personal financial agreement. In New South Wales, there are strict laws governing how debt collection works, including the rights and obligations of both creditors and debtors. Whether you are trying to recover a debt or are being contacted by a creditor, it is essential to understand how the legal process operates in NSW, what protections are in place, and how experienced solicitors like those at Golottas Solicitors can assist you in reaching a fair and lawful outcome
At its core, debt collection is about enforcing an agreement that one party has failed to meet. This could be a business chasing an unpaid account, a landlord pursuing unpaid rent, or an individual attempting to recover a personal loan. Whatever the nature of the debt, the debt collection process must be carried out in accordance with the law. In NSW, this means complying with the Australian Consumer Law, the Contracts Review Act 1980, the National Credit Code, and the Law Enforcement (Powers and Responsibilities) Act 2002. Creditors must also follow guidelines set out by the ACCC and ASIC, which ensure that debt recovery activities are conducted fairly, respectfully, and without harassment or intimidation.
The first step in most NSW debt collection matters is to issue a clear and formal request for payment. This may begin with friendly reminders or phone calls but quickly escalates if the debtor fails to respond. When informal methods do not work, the creditor often instructs a solicitor to send a letter of demand. This is a formal written request that outlines the amount owed, the reason the debt exists, and a timeframe for payment, usually between 7 to 14 days. A letter of demand is not required by law but is considered good practice as it gives the debtor a final opportunity to pay before legal action is taken.
If the debtor still does not pay, the next step is to commence legal proceedings. In NSW, debt recovery matters are usually filed in the Local Court or District Court, depending on the size of the debt. Claims under $100,000 are typically filed in the Local Court. The creditor becomes the plaintiff and files a Statement of Claim, which is a legal document outlining the amount owed and the basis of the debt. This document must be served on the debtor, who then has 28 days to respond. If no defence is filed, the creditor may apply for a default judgment. This is a court order stating that the debt is owed and gives the creditor the right to pursue enforcement action.
Once a judgment is obtained, the creditor may seek to enforce it through various legal means. The most common forms of enforcement include garnishee orders, writs for the levy of property, and examination orders. A garnishee order allows money to be taken directly from the debtor’s bank account or wages. A writ for the levy of property authorises the sheriff to seize and sell the debtor’s assets to satisfy the debt. An examination order requires the debtor to attend court and provide information about their financial circumstances. These enforcement methods are highly regulated and must be applied for through the court system.
Creditors must also be aware of time limits. In NSW, a creditor has six years from the date a debt becomes due to commence legal proceedings. After this period, the debt becomes statute-barred, meaning it is no longer legally recoverable even if it remains unpaid. This is why it is essential to act promptly and engage a debt recovery solicitor to assess your options as soon as a payment is missed.
For individuals or businesses who are owed money, engaging a law firm that specialises in debt collection provides several advantages. A solicitor can assess the strength of your claim, draft a legally sound letter of demand, handle negotiations with the debtor, and represent you in court if necessary. In some cases, simply receiving a letter from a law firm is enough to prompt payment. If litigation is required, having a solicitor involved from the outset ensures that all documents are prepared correctly, deadlines are met, and the court process runs smoothly.
On the other hand, if you are a debtor being pursued for payment, you also have legal rights. It is important not to ignore a letter of demand or court documents. Doing so could result in a default judgment, damage to your credit record, and legal enforcement action. If you dispute the debt, believe the amount claimed is incorrect, or have already paid the debt, you may be able to lodge a defence or negotiate a payment arrangement. You may also be able to argue that the original agreement was unfair or that you are under genuine financial hardship.
At Golottas Solicitors, we represent both creditors and debtors in debt collection matters across Sydney and greater NSW. Our team has extensive experience in handling commercial debt recovery, personal loans, contract disputes, and court enforcement. We take a practical and solutions-focused approach that prioritises fast resolution, legal compliance, and clear communication. Whether you are owed money and want to begin the collection process or you are being sued for a debt and need help understanding your options, we are here to provide expert legal advice every step of the way.
It is also important to understand that not all debts are enforceable. Some may have been paid in part or full, settled privately, or contain unfair contract terms. Others may be disputed on the basis that the product or service was faulty or never delivered. In these cases, we work with clients to review all documentation including contracts, invoices, emails and financial records to determine whether a valid defence exists. If so, we help prepare and lodge a formal defence in court and represent clients throughout the legal process. We also advise on the use of mediation and alternative dispute resolution to resolve matters without lengthy litigation.
Debt collectors and creditors must also comply with the Debt Collection Guideline which outlines how to contact debtors, how often contact may occur, and what language is acceptable. For example, calling a debtor late at night, threatening legal action without basis, or misleading the debtor about their rights may amount to unlawful conduct. These rules apply to debt collectors, credit providers, and even law firms acting on behalf of creditors. If you are a debtor who feels harassed or treated unfairly, legal advice should be obtained promptly as there may be grounds for a complaint or legal remedy.
In some cases, a debtor may wish to resolve the matter by offering to pay the debt in instalments or through a lump sum settlement. This may occur due to financial hardship or a desire to avoid court proceedings. At Golottas Solicitors we regularly negotiate payment plans and settlement agreements that are fair, legally binding, and protect the interests of both parties. We also assist with drafting deeds of release and confidentiality agreements where needed.
For business owners, having an efficient and legally sound debt collection process in place is essential to maintaining cash flow and protecting the long-term viability of the business. This includes having properly worded contracts, clear payment terms, and a defined escalation procedure when debts are unpaid. We assist businesses in developing these frameworks and provide ongoing legal support when disputes arise.
Finally, it is worth noting that debt collection is not always about being aggressive or combative. Many debts arise due to misunderstandings, administrative errors, or genuine hardship. A professional and respectful approach not only improves the chances of recovering the debt but also preserves business relationships and avoids unnecessary reputational damage.
Conclusion
Understanding how debt collection works in NSW and what your rights are is critical whether you are owed money or are being pursued for it. The legal process can be complex but with the right guidance and legal support you can navigate it effectively and achieve a fair outcome. At Golottas Solicitors we are committed to providing strategic and results-driven debt recovery services tailored to the needs of each client. Whether you are seeking to recover a small outstanding invoice or respond to a large-scale legal claim, we will act promptly to protect your legal interests and help resolve the matter efficiently. To learn more or book a consultation with our team of debt collection solicitors, visit our website today.
