Whether you are owed money personally or your company has debt to collect, the obvious remedy is to turn to the courts for help. But just how effective is the legal system for recovering debts?
Effective in Certain Situations
There are three particular sets of circumstance where the courts can be especially useful:
- As an Ultimatum- The threat of going to court is often enough to make a debtor pay up.
- When Your Debtor Disputes Your Claim – If your debtor does not accept the debt exists, the courts can investigate the matter and order them to pay you.
- If Your Debtor Is Able to Pay But Refuses- The courts can take action against debtors who simply refuse to pay, ensuring you receive what you’re owed.
Limitations of the Court System
There is one major limitation on the courts’ ability to recover debts: if your debtor simply cannot afford to pay you, there is not much they can do about it. While they may issue bankruptcy or winding up orders, this is unlikely to help you receive the full amount you’re due.
Also, if your debtor disputes your claim, and you are unable to provide concrete proof the debt exists, the courts are unable to force repayment.
Finally, it can be expensive to turn to the courts. And if you lose your claim or your debtor is unable to pay, you won’t be able to reclaim these expenses, leaving you even further out of pocket.
Increase Your Chances of Success
If you decide to pursue a debt through the court system, it’s important you do everything possible to increase your chances of success. In particular:
- Prove the Debt Exists – Before the debt is created, make sure you have proof of its existence, where possible this should be a written contract. And if the debt depends on the provision of goods or services, make sure you have proof you fulfilled your contractual obligations.
- Seek Legal Advice – Before applying to the courts, consult a legal expert who can advise you on how to best proceed with your claim.
Avoiding the Courts
Of course, the best solution in most situations is to recover your debt without having to involve the courts at all. Here are a few ways to do so:
- Don’t allow any person or company to become indebted to you unless you trust them fully and are convinced of their ability to repay.
- Be flexible and open to compromise. It’s better to receive a late payment or some payment than none at all.
- Use a mediator. A mediation service can help you reach an agreement with your debtor regarding repayment, a faster and cheaper alternative than going to court.
- Use a debt collection agency. They take over responsibility for collecting your debt, so you don’t have to worry about it.
Courts as a Last Resort
Where possible, it’s best to avoid the courts when seeking repayment of debt. But if your debtor can afford to pay and simply refuses, or if they dispute the existence of the debt, the court system is a very effective last resort once you have exhausted all other options.
