Chapters

Stages of Debt Collection through Court

There are five possible stages in the process of debt collection and they will be looked at in this order:

  • getting into debt;
  • failing to pay in answer to a letter of demand or other demand for payment;
  • court-ordered mediation;
  • going to court; and
  • recovering the judgment debt.

If a debt is not paid by the due date a creditor can take a debtor to court, but court action can be time consuming and expensive. Usually, before a creditor takes court action the creditor will make several demands for payment, possibly in a letter of demand. If the debtor owes money for goods or hire purchase, the creditor may repossess the goods. A similar situation may arise if the creditor has security over goods, for example by way of a bill of sale or chattel mortgage. If the debt is not repaid on time the creditor may be able to take possession of the goods. Even if goods are seized and sold the debtor may still owe money to the creditor.

If demands for payment do not succeed, the creditor may take court action against the debtor in one of two courts in Tasmania which hear civil claims such as actions for money owing. The courts are the:

  • Supreme Court of Tasmania;
  • Civil Claims Division of the Magistrates Court
  • Minor Civil Claims Division of the Magistrates Court (Also known as the ‘Small Claims Court’).

Creditors are discouraged from taking actions in the Supreme Court which could have been taken in a lower court. A creditor, even if successful, may not recover solicitor’s fees and other costs involved in taking court proceedings against the debtor if the court action could have been taken in the small claims division of the Magistrates Court, or may only recover them at the applicable lower court scale (s13Supreme Court Civil Procedure Act 1932 (Tas)).

The Magistrates Court – Civil Division and Minor Civil Claims

The Civil Division of the Magistrates Court can hear disputes over sums less than $50,000, or more if the parties to the dispute agree. The Minor Civil Claims Court in the Civil Division can only hear matters up to $5,000. The Minor Claims Court is a more informal type of court in which lawyers cannot appear without the agreement of the parties or the approval of the magistrate. Before the magistrate can give his approval he must be satisfied that the other party will not be unfairly disadvantaged if a lawyer appears for one party (s31ADMagistrates Court (Civil Division) Act 1992 (Tas)).

The procedure in the Supreme Court is similar, but there are different documents and different time limits. If a debtor is served a Supreme Court writ he or she should seek legal advice immediately, as the Supreme Court has the jurisdiction to hear disputes over matters that concern sums greater than $50,000. Furthermore, unless a document called an ‘Appearance’ is lodged with the Supreme Court registry within 7 days of service of the writ (rule 98Supreme Court Rules 2000 (Tas)), the creditor may request a default judgment and commence execution proceedings against the debtor (rules 347 and 348Supreme Court Rules). The Magistrates Court gives a defendant 21 days after being served with a notice of a court action (rule 48Magistrates Court (Civil Division) Rules 1998 (Tas)). Within that 21 day period, a defendant has to file a document called a ‘defence’, if they do not file a defence in this time, the creditor may apply to the court for a ‘default judgment’. Only file a defence if you disagree that you owe money, or disagree with the amount that you owe. If you agree that you owe that amount but cannot pay right away, you should contact the creditor to arrange payment in installments.

Time Limits

An action for the recovery of a debt will not succeed unless it is commenced within a period of six years from the date when the cause of action first arose, for example, from the time when the debt was repayable or the debtor defaulted in repayment (s4Limitation Act 1974 (Tas)). Under section 29(4) of the Limitation Act, if the debtor acknowledges the debt in writing or makes a payment the limitation period will recommence from the date of acknowledgement or payment provided it complies with section 30 of the Limitation Act.

The requirements of section 30 are as follows:

  • the acknowledgement must be in writing and signed by the person making the acknowledgement;
  • the acknowledgement or payment must be made to the person or agent of the person whose claim is being acknowledged or in respect of whose claim the payment is being made;
  • the acknowledgement or payment may be made by the agent of the person liable for the debt. 

Alternative Dispute Resolution

Disputes with a money limit of up to $5,000 are dealt with in the Magistrates Court Minor Civil Claims division (or ‘Small Claims Court’). The purpose of the Small Claims Court is to deal with cases as cheaply and efficiently as possible by cutting down on formal legal procedures and encouraging negotiated settlements. Lawyers can only represent people in the Small Claims Division in very rare instances.

Under new rules, civil cases proceed quickly through the Magistrates Court. All minor civil cases go through compulsory mediation with emphasis put on the parties to settle the case or to settle as many issues in the case as possible by means of aggressive case management procedures and cost penalties. Regular civil matters can go through conciliation at the request of the parties involved. This means that going on to court is often no longer the outcome of a dispute as many disputes can be resolved through mediation.

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