The Legal Process for Collecting Debt
by Shane O'Neill
- How do I start?
If you are having difficulty in recovering a debt that is due to you, you should consider initiating legal proceedings for the recovery of that debt. Once you instruct your solicitor, your solicitor will furnish a preliminary 7 day demand letter to the debtor detailing how the sum arose and seeking payment by a certain date. If the debtor fails to pay the debt by that date, the debtor will be warned in the letter that proceedings will be issued and that the letter will be used to request the Court to fix costs against the debtor of bringing those proceedings. In some cases, this preliminary letter will be successful in recovering the debt outstanding as many debtors will pay the debt due on receipt of that 7 day warning letter to avoid increased costs and ultimately to avoid going to Court.
However, in the current climate, the threat of legal proceedings may not be sufficient for the recovery of the debt and you may need to go to Court to seek recovery of your debt.
- What Court do I use and how do I obtain Judgment?
The value of the debt that is owed to you and the nature of the case itself will determine whether the matter is pursued in the District Court, Circuit Court or High Court. Each Court has its own monetary jurisdiction. Where the debt is less than €6,348.69, proceedings will issue in the District Court. Where the debt is between €6,348.69 and €38,092.14, proceedings will issue in the Circuit Court. Any debt that is greater than €38,092.14, proceedings will issue in the High Court.
The cost and speed of having successful proceedings and obtaining judgment against the debtor can be greatly affected by the willingness of the debtor to defend the matter.
In all cases, the first step is to issue and serve the necessary Court proceedings on the debtor. The debtor is sued where the debtor resides, carries on business, or where the original contract occurred. After proceedings are served on the debtor, should the defendant fail to respond entirely and the service of the proceedings is deemed to be successful, then you can obtain judgment against the debtor without potentially ever going to Court. If the debtor responds and further negotiations fail, the matter ends up before the relevant Court, where the Judge will make a decision on the matter.
Just because you have obtained your judgment in the relevant Court does not mean that you will actually get paid the debt. The debt may only be paid once the judgment has been enforced. There are numerous options for the enforcement of the judgment and these will vary depending on whether the debtor is an individual or a company. The most common options availed of are:-
- Instalment Order (against individuals only);
These proceedings are always taken in the debtor’s local District Court, irrespective of the amount of the debt. The debtor can be called to attend at Court to be examined as to their means. The financial circumstances of the debtor will determine whether such an order is granted.
- Publication of Judgment in Trade Gazettes;
The Judgment can be registered in the Judgment Section of the High Court. Therefore, when a Judgment search is carried out against the individual or company debtor, the Judgment will appear. This will greatly affect the credit rating of the debtor.
- Registration of Judgment as a Mortgage;
If the debtor owns property, it will be possible to apply to Court to register the Judgment as a mortgage on the deeds of that property. This means that in time, should the debtor decide to dispose of the property, the debtor will be prevented from doing so until such time as the Judgment Mortgage is discharged. A Judgment Mortgage ranks in priority after any mortgage registered in favour of a financial institution’s mortgage/security.
- Lodgement of Judgment in Sheriff’s office;
The Sheriff is an officer of the Court and is entitled to seize the debtor’s assets and sell them in order to discharge the debt due and owing. There is a Sheriff in each County in Ireland and the Sheriff has the power to decide if the debtor in question has goods worth seizing and selling. He will not seize their tools of trade or essential household items.
- Winding up a Limited Company (against companies only)
The threat of winding up a company will often result in the company settling with you so long as the company does not have serious long-term financial difficulties and the threat of liquidation is an effective weapon where the company has substantial assets but will not pay the debt owed.
- What costs do I have to pay?
If you are successful in obtaining judgment by way of uncontested procedure, you will be awarded the Court’s scale costs. These costs are very low and do not compensate you fully for all the costs incurred by you in securing the Judgment.
Where a matter is contested, however, you obtain Judgment at the Court hearing. The decision as to whether to award you your costs, if you are successful, is at the sole discretion of the Trial Judge. However, it is generally the case that costs follow the award. If proceedings are taken and the debtor successfully defends the claim, you may be liable to pay the costs of the successful debtor.
Interest may be claimed at the rate specified in the contract, the subject matter of the proceedings. If there is no reference to interest in the contract, the Court has a discretion to award statutory interest.
Your solicitor’s professional fee will vary depending on the amount of work undertaken, the nature of the debt in question and whether the matter is contested or uncontested. There are additional routine outlays which arise throughout the debt recovery process, such as:-
- stamp fees incurred on legal documents (this will vary depending on the relevant Court);
- searches in the Property Registration Authority/Companies Office;
- Barrister’s fees (should their services be required for complex or High Court/Circuit Court cases).
As the economy has tightened, how efficiently you manage and retain your cashflow will depend on the extent of how effectively you utilise the legal procedures available to you. The quicker you act, the quicker you can obtain Judgment, enforce Judgment and get paid.
Contact: Shane O’Neill
Partner - Debt Recovery
Sweeney McGann Solicitors
Phone: 061 317533