The Debt Recovery Process in Victoria, Step by Step

Where your debt is on the ladder, and what happens next

If someone owes you money and will not pay, what happens next is more predictable than most creditors expect. Victorian debt recovery runs up a ladder of five steps, each one cheap relative to the one above it, and each designed to make the debtor pay before you need the next. Here is the whole path with the timeframes attached, so you know exactly what you are starting.

You do not have to work out which step fits your debt on your own. Call MK Law on 1800 130 120 and we will place your debt on this ladder in one free call.

Step 1: confirm the debt is worth chasing (day one)

Before anything is sent, two questions get answered. Is the debt legally solid: due, payable, documented, and inside the six-year limitation period that applies to most contract debts in Victoria? And is the debtor worth pursuing: a trading business, an owner of property, an individual with income? If both answers are yes, the file opens. If either is no, we tell you on the first call and you have spent nothing. Self-represented creditors tend to skip this filter, which is why so many of them end up holding judgments they cannot enforce.

Step 2: the letter of demand (most debts end here)

A lawyer-drafted letter of demand states the debt, sets a deadline of seven or fourteen days, and names the real next step. It goes out within 48 hours of instructions, and in our experience most commercial debts are paid within fourteen days of it landing. For a creditor, this is the best value dollar you will spend on the file.

Step 3: statutory demand or court claim (the fork in the path)

What an ignored demand leads to depends on your debtor. For a company owing $4,000 or more with no genuine dispute, a statutory demand under the Corporations Act gives it 21 days to pay before it is presumed insolvent and exposed to winding up. For individuals, or for any debt the debtor genuinely disputes, we file a complaint in the Magistrates’ Court of Victoria, which hears claims up to $100,000, with bigger claims going to the County or Supreme Court. Some debts belong in a tribunal instead. Consumer, retail lease and owners corporation money claims are heard in the Civil Claims List at VCAT, and if that is where your debt sits, we file there rather than in a court.

Step 4: judgment (faster than you think when the debt is clear)

Once the complaint is served, the debtor has 21 days to file a defence. Most undisputed debts draw no defence, and we then apply for default judgment on the papers with no hearing required. A defended claim takes longer, typically six to nine months through pleadings and mediation to judgment, though most defended files still settle along the way. From the date of judgment the debt earns penalty interest at 10 per cent a year, so from that point delay costs the debtor rather than you.

Step 5: enforcement (turning the judgment into money)

Judgment is the halfway point, and this is where the pressure becomes practical. The options include a warrant of seizure and sale against the debtor’s goods, a garnishee or attachment order that redirects their bank balance or wages to you, an instalment order, and an examination summons that compels the debtor to disclose their assets in court under oath. For debtors who still will not pay, a bankruptcy notice is available against an individual once the judgment is $10,000 or more, and winding-up proceedings against a company, which is where our insolvency lawyers pick up the file. Which tool we reach for depends on what step one found, because you enforce against the assets you already know exist.

Find out which step your debt is on

The ladder only works if you get on it before the limitation clock, the debtor’s other creditors, or an insolvency gets there first. Call 1800 130 120 or use the form on this page, and a debt recovery lawyer will map your debt against these five steps on a free first call. For the full service picture, start at our debt recovery lawyers page.