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Banks, financial institutions, licensed moneylenders and even ordinary people may find themselves in a difficult situation when it comes to recovering loans. Banks, financial institutions and larger licensed moneylenders can recover back monies from debt defaulters through legal means. Such organisations and businesses are also able to write-off a percentage of defaulters without having any significant impact on their operations. However, smaller-sized licensed moneylending businesses and private individuals who have extended friendly loans are in a much different position. They aren’t able to handle such losses or may lack the resources or information necessary to recover these sums through legal means.
The Problem with Debts
The problem that these smaller businesses and private individuals face is the costs involved in taking legal action against the defaulters; if the loan amount is small, then it may not make commercial sense to initiate legal proceedings. Ask any lawyer, and he or she will be quick to quip “don’t throw good money after bad money”.
We understand that hearing such quotes is useless as it does not provide any objective means for you to assess whether it would be viable to pursue legal action against the defaulter. At I.R.B. Law LLP we will be able to discuss the available legal remedies available to you that will aid you in recovering your debts. Our primary aim is to arm you with the right information so that you can make the right decision.
Engaging a Lawyer to Recover Debts
The first and most traditional route to take is to engage a lawyer to commence proceedings against the defaulting debtor. Before any action is formally commenced, your lawyer will send a letter ofdemand to the debtor.
Letter of Demand
The letter of demand; will invariably set out the nature of the debt, the sum owed and the timeframe within which the debtor must make repayment. Beyond this, the letter of demand may differ depending on the nature of the debt and the facts of the case so in more complex matters it may be lengthier and you can expect that the costs involved will be higher. Typically you can expect that a letter of demand will cost at least $150.00 or more depending on the complexity of your claim as well as the firm or lawyer that you engage.
The usefulness of a letter of demand< is open for debate. In some cases, it can motivate the debtor to repay the sums due to avoid the prospect of litigation or at least bring them to the table to negotiate a repayment scheme.
What if my Debtor is as slippery as an eel?
Frustrating as it is, it is also quite common for the debtor to ignore the letter of demand. They may do this for a variety of reasons – they may be unable to pay, they may intend to dispute the debt, or they may even think that the creditor is not serious about taking legal action against them.
In short, the letter of demand does not work on all people so be mindful of who your debtors are and consider whether they might respond to a letter of demand.
What’re my chances of recovering my debt?
In a best-case scenario, the borrower repays the sums due after the letter of demand is sent. In such a case, the only out of pocket expenses you would have to incur is your legal fees concerning the letter of demand.
It is worth noting that if the debtor still fails to repay the sums due, then you stand at the crossroads of two inquiries that will influence your decision – would it be wise to expend more money on commencing an action against the debtor, or should you cut your losses?
Before making this determination, you should consider the sum of your debt, the prospects of recovering the debt and the costs involved in taking further steps in the proceedings.
If you decide to proceed, your lawyer will then commence the action in court. Depending on the sum of the debt due, your claim may be filed in either the Magistrate Court, State Courts or even the High Court of Singapore. The fees involved differ depending on where the claim is filed. Needless to say, the costs involved in High Court matters are more expensive than the Magistrate Court.
I’ve filed my Claim now what?
Once the claim is filed, the debtor has a limited amount of time to enter his appearance to defend the claim against him. If the debtor fails to do so, you will be entitled to apply for judgment.
It is quite common to obtain judgments in default of appearance in such cases. However, this does not mean that you will automatically recover your debt. The judgment at this stage is only an order requiring the debtor to pay the sums due, and it does not contain any enforcement provisions that order for the debtor’s assets to be transferred to you. As such, you should bear in mind that it is not uncommon for borrowers to fail to comply with the judgment. Thus for you to recover your debt, you would need to take out enforcement proceedings in Singapore.
So what happens if the debtor refuses to pay up even after you obtain judgment? Unfortunately, you are left holding what is informally known as a ‘paper judgment’, and you must then move to enforce your rights contained in that judgment.
There may be several ways to enforce the judgment, one of which is to apply for a Writ of Seizure and Sale (WSS). The WSS involves the seizing of the debtor’s personal assets and liquidating it, thereby allowing you to recover the monies realised after selling off the debtor’s assets to satisfy the debt due. You will incur additional legal fees to carry out such enforcement proceedings.
The good news is you will be able to claim a portion of your legal costs from the debtor. This includes the costs of enforcement as well. However, it must be stressed that you will not get back all of your costs. In most cases, you can expect to recover approximately 50 to 75% of your legal costs from the debtor.
If the enforcement proceedings are a success, you will finally be able to recover your debt. However, there are no guarantees that this will be the case. For example, it may very well be that even after going through the WSS, the sale proceeds from your debtor’s assets amount to less than the sum he owes you. Or even worse, your debtor has no personal assets of any value worth seizing. This is why it is important that you pick the right enforcement proceeding.
Your lawyers will be able to advise you on which proceedings will be most beneficial. However, you need to feed your lawyers with enough information for them to make the determination. Get a handle on your debtor and determine whether he owns enough personal assets. If not, consider other forms of enforcement. For example, if he is employed or has bank accounts with sufficient funds, you may consider taking out garnishee proceedings instead.
Engaging a Debt Collection Agency
Another option is to engage the services of a debt collection agency. The difference between debt collection agencies and lawyers is that the lawyers work within formal legal avenues which culminate in a legal entitlement to the debt (through a judgment) or to a legal right to enforce your claim in which case the state will assist you to realise the debt through various enforcement proceedings.
Debt collection agencies, however, circumvent these legal avenues and seek to recover your debt through informal methods based predominantly on pressuring the debtor to make payment.
Pros & Cons of a Debt Collection Agency
One of the benefits of using a debt collection agency is that they may be able to recover your debts faster than traditional legal methods and for a significantly lower cost.
On the downside, debt collection agencies lack any formal powers to recover your debts and the methods they employ can sometimes border on being illegal. For example, there have been numerous cases in which complaints have been made about such agencies harassing debtors.
Some debt collection agents and their employees have also been charged with committing offences in the course of recovering debts. While it is unlikely that you will face prosecution for any offences committed by the debt collection agents, it would nevertheless be a disservice to become embroiled in any such incidents.
If you are a business, such incidents could affect your goodwill and reputation as well. Ultimately, it is for you to decide whether engaging a debt collection agency would better serve your interests, but if you do, you should be careful to appoint organisations that conduct themselves professionally and within the boundaries of the law.
How We can help
At I.R.B Law LLP our team of experienced lawyers are able to advise and guide you through the process with the aim of resolving your matter expeditiously while keeping your costs low, we believe that legal solutions should not be hindered by high legal fees and sudden bill shocks.
Should you find yourself in a situation that our assistance or if you simply wish to be advised on a matter, please do not hesitate and contact us at Hello@irblaw.com.sg or call us at +65 6589 8913 so that we can advise you on your matter. Our first consultation is usually free as we wish to help you find a solution for your problem and not simply focus on your wallet.