How to recover a debt from an individual
First, give notice of the debt
To recover a debt from an individual you must first give the person notice of the debt owed, what it is owed for, and when payment is required. If the person does not pay the debt then you should proceed with court action.
Which court do I apply to recover the debt?
- If the amount is less than $7,500 and the debtor disputes the debt, you can apply to the Disputes Tribunal (formerly the "Small Claims Tribunal"). The Disputes Tribunal can't be used to collect debts that the debtor doesn't dispute. If both you and the debtor agree, you can take amounts up to $12,000 to the Tribunal. (For the procedure in the Tribunal, see How to make a claim to the Disputes Tribunal.)
- Larger amounts up to $200,000 go to the District Court, with the right of appeal to the High Court, and after that the right of appeal to the Court of Appeal on a point of law.
- If the amount is over $200,000, then the initial Court is the High Court, with a right of appeal to the Court of Appeal.
How do I start proceedings in the court?
There are two procedures that can be used to obtain a court judgment for a debt:
- Standard procedure â€“ This is begun by the creditor filing a Statement of Claim and a Notice of Proceeding. The debtor responds with a Statement of Defence and the case goes to a Court hearing.
- Summary Judgment â€“ This is a faster and simpler procedure, available when the creditor believes that the debtor has no reasonable defence against the claim. The creditor files the same documents as with the standard procedure, plus an additional application and affidavit.
How much will it cost me to go to court?
Be aware that the costs of court action will include the court filing fees, other costs such as service fees (possibly up to $100), and solicitor's costs.
If you've used the summary judgment procedure and the debtor has not disputed your application, costs between $500 and $1,000 may be awarded by the court, and these will go towards your lawyer's fees when paid by the debtor.
What will I be awarded if the court decides in my favour?
If the judgment is in your favour then the court order will include the following:
- the original debt
- interest at either the rate agreed in the terms of trade, or at 7.5 percent (a standard rate set by legislation), or at some other rate that the court decides
- legal costs and disbursements associated with obtaining the judgment (these will not cover all your expenses)
How do I enforce the judgment if the debtor still doesn't pay?
If the debtor still does not pay after the court has given you a judgment for the debt, you can use the court to enforce payment of the debt. The most common methods of enforcement are:
- Order for Examination - This is a court order to have the debtor brought before the court Registrar and examined about his or her financial situation. If the Registrar decides the debtor can pay the debt, the Registrar will make an order for payment. Usually the Registrar will try to negotiate an arrangement for payment that suits both parties. The Registrar can also make a number of other enforcement orders (including the ones listed below).
- Attachment Order - This instructs the debtor's employer to make regular deductions from the debtor's wages or salary (including bonuses and incentive payments). It can also order ACC or Work and Income to make deductions from ACC payments or welfare benefits. An Attachment Order can also be made against commissions and payments received as an independent contractor. An Attachment Order can't be made unless there has first been an Order for Examination
- Distress Warrant (for personal property) - This authorises a Collections Officer from the court (a "bailiff") to seize goods from the debtor to the value of the debt. The seized goods are held for five days and then sold, usually by public auction.
- Charging Order and Writ of Sale (for land) - The registration of a charging order puts a stay on the debtor's property, preventing him or her from selling the property until the debt is satisfied; the property can be sold to satisfy the debt by a writ of sale.
- The court procedures for recovering debts are complex, and you may therefore need to obtain legal advice.
- If you've obtained judgment for the debt, note that you are responsible for pursuing the debt, not the court.
- Always be aware of the possibility that the individual may in fact be bankrupt or have no assets. In such a case it is best to seek legal advice in order to fully understand what is involved in enforcing the sale of the debtor's property in order to have the debt repaid. A bankruptcy notice and bankruptcy proceedings in the High Court is a separate set of court proceedings against the judgment debtor. The costs for such a court case in the High Court include filing fees, disbursements such as other service fees (which could be up to $150), and solicitor's costs calculated on an hourly basis. The other enforcement steps are also separate proceedings.