What to do when someone owes you money and refuses to pay

Does a tenant owe you rent? Does your boss owe you wages? You loaned money to someone and he/she did not pay you back? Pursuing people for money that belongs to you can be irritating and time-consuming. One way to recover your money is to sue the person or company owing you money (also known as a debtor), but this is generally the most expensive way of resolving a dispute. Before going to court, it is worth considering alternatives such as issuing a ‘letter of demand’ to the debtor, and mediation. In this article, we will explain to you the initial steps in your journey to recovering your debt.

Letter of demand

A letter of demand is exactly what it sounds like. This document is addressed to the debtor and contains your demand for money which belongs to you. The most effective letters are succinct and can include the following:

• The amount owed to you in dollar value;
• A copy of the invoice which has not been paid or a copy of the contract that has been breached;
• The deadline for repaying the debt (usually within 7 days of the date of the letter);
• The method of repayment (e.g. electronic funds transfer, cheque or cash); and
• Your intention to sue the debtor if the debt is not repaid.

Take the time to ensure that you have correctly identified the debtor or debtors including address and email. You also want to make inquiries about the debtor’s assets and ascertain whether or not the debtor can satisfy your debt. If you would like an effective letter of demand to be drawn up, feel free to contact our team.

Mediation

Another affordable way to resolve a monetary dispute is through mediation. It involves the parties, usually with their lawyers, attending a meeting with a mediator trained in settling disputes. At first, the mediator meets the parties and their lawyers altogether, at which each side makes an opening statement of their position, followed by some negotiation. At this stage, you want to find out why the debtor has refused to return your money. Next, the parties and their lawyers are placed in separate rooms, while the mediator moves between each room, presenting offers of settlement, and trying to bring each closer to the other’s position.

Attempting mediation is generally expected by judges before court proceedings begin.

The NSW Community Justice Centres and NSW Small Business Commissioner offer cheap mediation services.

Statement of claim

If the two options above are unsuccessful, then you can consider filing and serving the statement of claim to the debtor. The statement of claim is a written declaration by you, the creditor, containing the facts that are to be relied upon to a support a claim against the debtor, and the relief claimed. It can be an effective way of bringing the debtor to the negotiating table. However, this pathway is costly and can take many months before a trial takes place. If you do go to trial and obtain a judgment in your favour, you can legally force the debtor to repay you.

For debt up to $100,000.00, the statement of claim would be filed in the Local Court.

For debt between $750,000.00 and $100,000.00, the statement of claim would be filed in the District Court.

For debt greater than $750,000.00, the statement of claim would be filed in the Supreme Court.

Conclusion

Therefore, there are various options available to recover your money, and we recommend that you try resolving the dispute outside of court first. Issuing a letter of demand and attending mediation are not only cost-efficient, but they are also short in duration and have a relatively high success rate. If you need any assistance with drafting an effective letter of demand or need legal representation, please contact our team.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

Yes, you can sue someone who owes you money. When someone keeps "forgetting" to pay you or flat out refuses to pay up, the situation can quickly become frustrating.

You can take the issue to a small claims court and pursue legal action if it meets the minimum and maximum money thresholds.

Money Threshold for Small Claims Court

Check your state's small claims case money limit first before considering legal action. You can search for the terms "[your state] money owe small claims court" or "[your state] money claims conciliation court." Look for a .gov website with an answer, or call a small claims court attorney with questions.

For example, Oregon small claims courts allow any case up to $750. Cases requesting $750 to $10,000 can go to small claims or civil court. Any cases recovering over $10,000 need to go to civil court or a local superior court.

Small Claims Judgment 101

Small claims court exists to give two or more parties a place to state their side of the story. However, you should carefully consider if suing someone is the right course of action.

You will prepare your case, file a complaint, and then a judge will hear the case and provide a final ruling based on the evidence you present. The cases and resolutions tend to be quick, and both sides must obey the judge's decision.

While you can usually bring an attorney to some small claims court, many people choose to represent themselves to save money. Some states don't allow you to have an attorney at all.

Note: If the money owed is due to rent, housing, or pending eviction, you should know those laws in your state. Debt involving real estate, eviction, personal injury, security deposits, unfilled contracts, and other small claims lawsuits may have specific rules in state courts.

Owing Money: Legal Definition

There are some guidelines you need to follow to sue someone for owed money. You obviously can't gift someone money and one day decide you want it back. You also can't loan someone money but never tell them you expect to be paid back.

In the legal sense, owing money must include:

• Clear expectations this is a loan
• Both sides understand there is a legal duty to pay the money back
• A date when the payment, payment plan, or payment installment is payable
• The payment date has arrived or passed
• Some physical or digital record of the money owed or given

Typically, it is a good idea to create a contract for money loaned, money owed, or any personal property you lend. Other ways to show evidence can include emails, texts, money transfer receipts, bank account transfer history, etc.

It can be hard to prove your case if you verbally discussed a loan, gave them cash, and have no record of discussing paying the money back.

Suing Someone for Loans or Debts 101

To show your case in the best possible light, it is a good idea to try other methods of debt collection first. Be sure to ask for the money — preferably in writing — so there is a record of your attempts. This is called a "demand letter."

Even if the debtor doesn't answer you, you should ask them multiple times for the exact dollar amount they owe. It is a good idea to tell them you will pursue legal action as a next step.

You can also consider professional collection agency services that work to retrieve personal loans. If other debt collection methods have failed, you need to follow steps to take the matter to small claims court. You can also consider mediation instead of court (many small claims courts will send you through mediation first).

This is also the time to consider if you want an attorney at your side in small claims court. Not hiring one can keep costs low, but the case may take longer, and you could possibly have a better outcome with professional representation. An attorney is also a good idea if the debt is too large for small claims court and you need to file in district court. Depending on your circumstances and the type of case, you may be able to have legal aid provided free of charge.

Step 1: Filing Your Complaint and Paying Filing Fees

First, check the thresholds for the amount of money you are requesting and the correct court to file in. If the amount is too small or too large, you won't be able to file in small claims court.

File a complaint with your county and pay attention to the forms and documentation the case requires. You will need to pay some court costs — typically under $100 — to file the paperwork.

Step 2: Serving the Lawsuit and Court Dates

The fee you paid may go toward a court official "serving" the case. This means they will find the person who owes money (the "defendant") and give them official notice that they are being sued by you (the "litigant"). You might also be able to serve the defendant yourself through certified mail.

During this phase, you should gather evidence, practice speaking about your case, and prepare yourself for court.

Note: If the person you wish to sue filed for bankruptcy, their bankruptcy will trump your case. The "automatic stay" in bankruptcy stops anyone from collecting debt, even lawsuit debt. You may have options to collect the money when their case is decided. The bankruptcy judge may also rule that they must pay you back.

Step 3: Attend Court Hearing

Be on time for your court date. You can expect the court hearing to be quick — typically around 15 minutes total. If you are nervous about what goes on during a hearing, you can sit in on small claims court cases in advance.

You will need to show your documents and provide evidence that the other person owes you money and has ignored or refused to pay you. Answer all questions and be polite.

Step 4: Final Ruling and Collecting Debt

If the other person doesn't show up to court, there will be a "default judgment" in your favor. The judge can rule that the person must pay. However, this doesn't mean they will automatically pay you.

You still need to collect the money by:

• Getting a lien on their property until they pay you
• Wage garnishments via court order
• Following any judgment the judge determines

You can have an attorney help you through the whole process or step in at the end to enforce getting your money. Even after a good outcome in small claims court, getting a debtor to pay can still be drawn-out and complicated.

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