Debt Recovery

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.

There are a number of paths you can take when you’re facing bankruptcy and it’s important to consider each option carefully so that you can work your way out of this unfortunate situation where you can’t pay your debts.

The Bankruptcy Act 1966 (‘the Act’) sets out these options which we’ll look at below. One of the key things to consider is whether you are better off declaring bankruptcy, which may clear your slate of debts but has other serious consequences for your lifestyle, or you instead negotiate a legally enforceable debt agreement, which allows you to repay your debts on a schedule you can manage.

If you need more guidance on these options after reading this article contact Felicio Law Firm for a consultation. We will help clarify the best way forward with empathy and understanding.

The process and consequences of bankruptcy

When debts are mounting and a person has no way of meeting them, declaring bankruptcy under the Act often seems the best way forward.

Bankruptcy can be entered into voluntarily, or be forced on you by a creditor through a court order (what’s known as a sequestration order).

Once you are declared bankrupt, a trustee is appointed to manage your period of bankruptcy, which is usually three years and one day. The trustee can be appointed by the Australian Financial Security Authority (AFSA) or you can nominate your own registered trustee.

Once you are bankrupt and a trustee appointed, you have a series of ongoing obligations you agree to, including:

• providing details of your debts, income and assets to your trustee;
• facilitating the trustee notifying your creditors of your bankruptcy, which will stop them contacting you about repaying your debts;
• facilitating the trustee selling certain of your assets to help pay debts;
• making compulsory payments if your income exceeds a set amount.

Bankruptcy means you won’t have to pay unsecured debts, such as credit and store cards; unsecured personal loans and pay day loans; gas, electricity, phone and internet bills; overdrawn bank accounts; unpaid rent; and medical, legal & accounting fees.

But you will have to check with the creditor to see whether you are freed from certain other debts, such as Centrelink or ATO debts, victims of crime debts or toll fines.

Bankruptcy does not free you from certain other debts, such as court imposed penalties and fines; child support & maintenance; HECS and HELP debts; any debts you incur after your bankruptcy begins; and unliquidated debts.

It’s also important to note that being declared bankrupt can affect the way you live your life. During the period of bankruptcy your ability to work in certain trades and professions and be a director of a company will be restricted, while you’re also not able to travel overseas unless given permission by your bankruptcy trustee.

The record of your bankruptcy will also stay on your credit report for five years and your name will permanently remain on the National Personal Insolvency Index.

How are Part IX debt agreements different to bankruptcy?

A debt agreement is a legally binding contract between you and your creditors under which you make repayments of your debts on a payment schedule you can manage.

Such agreements are administered under the provisions of Part IX of the Act and hence are known as Part IX debt agreements.

There are conditions you must meet before being able to make such an agreement when you’re unable to pay debts that are due. Specifically you must:

• not have been bankrupt, or had a debt agreement or personal insolvency agreement, within the last 10 years;
• have unsecured debts and assets less than the set amount;
• estimate your after-tax income for the next 12 months to be less than the set amount.

‘Set amount’ refers to indexed, threshold dollar amounts which are updated twice a year to reflect the Consumer Price Index or the base pension rate. As of September 2020, for instance, the unsecured debt amount was $118,063.

The process of creating a Part IX debt agreement involves:

• negotiating to pay a percentage of your combined debt that you’re able to afford over a set period of time, and;
• making repayments to a debt agreement administrator, instead of making individual payments to creditors.

Once you complete the payments under the debt agreement, creditors can’t recover the rest of the money you owe.

Is a Part IX debt agreement preferable to bankruptcy?

Like bankruptcy, there are a number of consequences as a result of entering a debt agreement and it will be up to your judgement – or that of your legal practitioner – as to which best suits your circumstances.

Firstly you should understand that by proposing a debt agreement  you are undertaking an ‘act of bankruptcy’, which  your creditors can potentially use to apply for a court order to declare you bankrupt.

Additionally, if you trade under a business name that isn’t your own, you must inform those with whom you conduct business that you are operating under a debt agreement.

Furthermore, while unsecured debt is dealt with in such an agreement, secured creditors may still seize and sell any of assets you’ve offered as security for credit, such as your house or car, if you are unable to meet your payments. Remember also that there are eligibility limits to the amount of debt you can have in order to propose an agreement.

Entering a debt agreement of this kind will also be marked on your credit file for up to five years or possibly longer, and your name will be listed on the National Personal Insolvency Index.

Your creditors are likely to be more positive about a proposed debt agreement, however, as they are a better chance to recover more money under the agreement than if you are declared bankrupt.

We’re here to help

As the details above show, there are options when you are unable to meet debt repayments either as an individual or a business.

Working out which option is best for you given your situation is often best identified by experts in insolvency matters such as Felicio Law Firm.

We bring a warm and understanding approach to our relationship with clients and can help you guide you through to a fresh start if you are facing the prospect of bankruptcy. Call us Erina Lawyers today for an initial consultation on (02) 4365 4249.

Bankruptcy is a highly charged word. For many people it represents financial and personal failure, with an attendant loss of confidence and self-esteem.

But in some situations declaring yourself bankrupt is the most logical and sensible course of action, allowing you to extract yourself from a financial and legal quagmire and start afresh.

Below we’ll take a brief look at the advantages, as well as some of the disadvantages, of declaring bankruptcy. If you think this is an option you will require, you should consult a legal professional with experience in this area of the law such as Felicio Law Firm.

Why choose bankruptcy?

There are few things more stressful than falling behind on your debts. Doing so usually unleashes a cascade of unpleasant consequences – creditors chasing you for payment, threats of legal action to recover debts, and an inability to get yourself out of the debt hole.

When you declare bankruptcy, many of these consequences are stopped so that you can get your affairs in order. A registered trustee, who you are able to nominate, is appointed to manage the bankruptcy. The Australian Financial Security Authority (AFSA) will appoint a trustee if you don’t nominate one. The trustee’s role is to work with you and your creditors in order to find solutions which are fair and reasonable to all parties in the circumstances.

During bankruptcy you must provide necessary information to your trustee, including bank details, statements, pay slips and other documents which help clarify your current financial position.

This process helps prevent constant harassment by creditors, halts any legal proceedings against you to recover debt, and prevents the Sheriff from seizing any of your personal assets (except for new debts incurred after bankruptcy) in order to satisfy debts. If your wages or bank account are being garnished, this will also stop under bankruptcy (except in certain instances by the Australian Tax Office). In most cases, you are still able to earn an income, too.

Personal property protected under bankruptcy is indexed to maintain pace with the Consumer Price Index or the base pension rate. Property that cannot be taken and sold for the benefit of creditors includes your ordinary clothing; necessary household property (e.g. furniture and appliances, but not antiques or items of exceptional value); tools of trade up to the value of $3,800 and a car worth no more than $8,000 (as of October 2020); your superannuation  and life insurance policies, including payments from either policy received on or after the date of the bankruptcy; and any compensation received directly by you for personal injury.

There are also indexed limits over which you are not able to propose a debt agreement with creditors. These include $118,063 in unsecured debts, $236,126.80 in divisible assets and $88,547.55 in after-tax annual income (all correct amounts as of October 2020).

What happens to my debts?

When you file for bankruptcy you are generally freed from unsecured debts such as credit cards, unsecured personal loans and pay day loans; gas, electricity, phone and internet bills; overdrawn bank accounts; unpaid rent, and; medical, legal and accounting fees for the period of bankruptcy.

Other debts such as those owed to Centrelink or the ATO, or fines for parking infringements, tolls, etc, may not be ended by declaring bankruptcy. Other debts such as child maintenance and support, court-ordered fines or penalties, HECs, unliquidated debts or debts incurred after you filed for bankruptcy, cannot be avoided through bankruptcy. Legal advice should be sought.

Drawbacks of declaring bankruptcy

You must declare all your assets to the trustee once you become bankrupt. While some of your property and assets are protected, as outlined above, most will be sold to pay your debts, including your home. Cash in bank accounts over an amount considered necessary to live can also be taken.

If your income is over the indexed amount, this can also be used to make contributions towards your debts.

Some professions and licensed trades will restrict or prohibit your ability to work while you are in bankruptcy, and you will not be permitted to travel overseas without the permission of your trustee. In some cases you will be asked to surrender your passport.

During bankruptcy, you may experience difficulties accessing credit, renting a property or taking advantage of others services (such as taking out insurance) that most people take for granted. This is because your status as a bankrupt is listed on your credit report for a number of years after your discharge and is also permanently listed on the National Personal Insolvency Index.

The effects of these listings can be severe and long-lasting, preventing you from finding a place to live or to borrow money in order to start afresh. Furthermore you will not be able to hold a position as a company director, any money or assets received during bankruptcy will be taken by the trustee to satisfy your debts, and you are limited in your ability to commence legal proceedings against anyone without the permission of the trustee.

How long does bankruptcy last?

A person is usually discharged from bankruptcy after three years and a day, however a trustee can apply to have the period of bankruptcy extended for up to eight years.

If you are unsure whether bankruptcy is the right course to take, on the balance of the factors we’ve presented in this article, contact Felicio Law Firm today. We have considerable experience advising clients facing financial difficulties related to debts. We will work with you to understand both the advantages and the disadvantages of filing for bankruptcy so that you can make a decision that is right for your situation both now and into the future. Call us Erina Conveyancing today on (02) 4365 4249.