An unpaid invoice is rarely just a cash flow problem. It absorbs staff time, sours a commercial relationship and, if left long enough, quietly becomes unrecoverable. The good news is that most debts are resolved well before a courtroom is involved. The thresholds, deadlines and costs have all moved since this article was first written, so what follows is where things stand in New South Wales in 2026 — and where the federal law takes over.
Start with the cheapest step, not the loudest one
Court should be a considered decision, not a first reaction. Three earlier steps recover a great many debts at a fraction of the cost.
Direct contact. A call or email that asks why an account is unpaid often produces a straightforward answer — a disputed line item, a lost invoice, a genuine cash squeeze. An instalment arrangement recovered in full over four months is a better commercial outcome than a judgment you then have to enforce.
Alternative dispute resolution. Where there is an actual disagreement about the goods, the services or the amount, an independent third party managing the negotiation can resolve it quickly. Many commercial contracts require this before proceedings anyway.
A letter of demand. This is the formal request: the amount owing, its basis, a payment deadline, and a clear statement of what will follow if payment is not made. It should be accurate and measured. A letter that overstates the debt, threatens action you cannot take, or harasses the debtor can damage the claim you are trying to make. Having a solicitor prepare it also signals that the deadline is real.
Which court hears the claim
If the demand is ignored, proceedings begin by filing a statement of claim. Where you file depends on the amount.
| Court | Monetary limit |
| Local Court — Small Claims Division | Up to $20,000 |
| Local Court — General Division | Over $20,000 and up to $100,000 |
| District Court | Above the Local Court limit, within its civil jurisdiction |
| Supreme Court | The largest claims |
The Local Court’s civil jurisdiction extends to $100,000. Its two divisions run quite differently. The Small Claims Division is deliberately informal — the rules of evidence do not apply, and witnesses are generally not called in defended matters. The General Division is formal: witnesses attend, and a judge decides.
Filing costs money, and corporations pay double. These are the Local Court fees from 1 July 2026:
| Filing step | Standard | Corporation |
| Originating process, Small Claims Division | $179 | $358 |
| Originating process, General Division | $370 | $740 |
| Notice of motion | $114 | $228 |
Fees are set by regulation and reviewed each July, so check the current Local Court schedule before budgeting. Some disputes belong at NCAT rather than a court — residential tenancy and many consumer and commercial matters among them — and we have written separately about how NCAT hearings are conducted.
What happens after the claim is filed
Three things can follow.
The debtor pays, or applies to pay by instalments. The debtor files a defence, in which case the matter is listed and both sides prepare evidence. Or the debtor does nothing — and where no defence is filed, the creditor can apply for default judgment, which the court can enter without a hearing.
Default judgment is often described as the finish line. It is not. It converts the debt into a judgment debt, payable immediately, and it opens the enforcement toolkit. It does not produce money by itself.
Enforcing a judgment
The main enforcement options in New South Wales are:
- Garnishee order — directs a third party holding money for the debtor, typically a bank or an employer, to pay it towards the judgment.
- Examination notice — compels information about the debtor’s financial circumstances, which is the sensible first move when you do not know what the debtor has.
- Writ for the levy of property — directs the Sheriff to seize and sell the debtor’s property.
Enforcement carries its own costs. From 1 July 2026 the Sheriff charges $86 for each address at which service is effected or attempted, and executing a writ for levy of property attracts $111 per address plus 3% of the proceeds of enforcement. Those amounts are added to what the debtor owes, but the creditor generally funds them first.
Enforcement is also not open-ended. A judgment that has sat unenforced for more than twelve years generally cannot be enforced without the Court’s leave.
Interest, costs and what you actually get back
Two questions come up in almost every initial conversation: can I add interest, and will I get my legal costs back?
On interest, the answer is usually yes in some form. A well-drafted set of terms of trade will specify a contractual rate of interest on overdue accounts, which can be claimed as part of the debt. Where there is no contractual entitlement, courts have power to award interest up to judgment, and interest continues to run on a judgment debt until it is paid. The Local Court publishes the applicable rates, and they change over time.
On costs, expectations need managing. A successful party can usually recover some of its legal costs, but recovery is partial rather than complete, and in the Small Claims Division the amount recoverable is limited. On a $12,000 invoice, the gap between costs incurred and costs recovered can be a meaningful proportion of the debt itself.
The practical consequence is that the size of the debt should shape the strategy. Small debts reward persistence, good terms of trade and an early, well-drafted letter of demand. Larger debts justify the machinery.
Statutory demands: only against companies
If the debtor is a company, a statutory demand under section 459E of the Corporations Act 2001 (Cth) is a distinct and powerful option. This is federal law, not NSW law.
The debt must be at least the statutory minimum, currently $4,000 — not the $2,000 figure that applied before July 2021. Two or more debts can be aggregated to reach it. The demand must be in the prescribed form, served correctly at the company’s registered office as recorded with ASIC, and supported by an affidavit verifying the debt unless it is already a judgment debt.
The company then has 21 days to pay, secure the debt, or apply to the court to set the demand aside. That period is not extendable. If none of those things happens, the company is presumed insolvent, and the creditor can apply to wind it up.
Two cautions. First, do not use a statutory demand for a debt that is genuinely disputed — the threshold for establishing a genuine dispute is not high, and a demand set aside on that basis usually comes with a costs order against the creditor. Second, winding up a company you are owed money by is a blunt instrument: you join the queue of creditors, and if there are no assets you may recover nothing. Our post on liquidation explains what that queue looks like.
Bankruptcy: only against individuals
Where the debtor is an individual, the equivalent route runs through the Bankruptcy Act 1966 (Cth). A creditor who holds a final judgment for at least $10,000, no more than six years old and not stayed, may apply to the Official Receiver for a bankruptcy notice. The debtor has 21 days from service to comply. Failure to do so is an act of bankruptcy, which can support a creditor’s petition to the Federal Circuit and Family Court for a sequestration order.
The threshold was $5,000 for many years and is now double that, which puts a substantial number of consumer debts outside this route entirely. Post-judgment interest cannot be used to top a judgment up to $10,000. As with winding up, bankruptcy is a serious step with an uncertain financial return, and its consequences for the debtor are severe — a point we cover from the other side in our post on whether to file for bankruptcy.
Practical first steps for a creditor
- Check the age of the debt. In New South Wales, most contract and debt claims must be commenced within six years of the cause of action arising. An out-of-time claim is usually unrecoverable, whatever its merits.
- Confirm who the debtor actually is. A company, a sole trader, a trustee or a partnership are four different defendants. Suing the wrong entity wastes the filing fee.
- Get the paperwork in order now. Contract or terms of trade, purchase orders, invoices, delivery records, and the correspondence chain. This is what a defended claim turns on.
- Assess recoverability before you spend. A judgment against a debtor with no assets is an expensive piece of paper.
- Take advice on the right forum. Court, NCAT, statutory demand or bankruptcy notice — choosing wrongly costs both time and the filing fee.
The Bottom Line
Debt recovery in New South Wales is a sequence, and the early steps are the cheap ones. Talk, negotiate, then send a properly drafted letter of demand. If proceedings become necessary, the Local Court handles claims up to $100,000, and a judgment is the beginning of enforcement rather than the end of the matter. Where the debtor is a company, the $4,000 statutory demand threshold and its unforgiving 21-day window apply; where the debtor is an individual, the bankruptcy route needs a judgment of at least $10,000. Above all, watch the clock — the six-year limitation period is the single most common reason a recoverable debt stops being recoverable.
If you have questions about recovering a debt, or you have received a letter of demand, a statement of claim or a statutory demand yourself, don’t hesitate to get in touch with one of our friendly Debt Recovery lawyers on the Central Coast. You can contact our Erina office here.
