Receiving a letter of demand can be an alarming experience, particularly if you don’t know what to do about it. To help clear up any confusion, let’s explore what a letter of demand is and the steps you need to take after receiving one.
What is a Letter of Demand?
A letter of demand is a formal warning sent from one party to another demanding that a debt be repaid or that an action that was required under an agreement be performed. A letter of demand should be taken very seriously as it’s typically the final step before a party initiates legal proceedings. Knowing the right way to respond can save you a lot of time and money on litigation.
Every letter of demand will be different, but they all deliver the same general message: ‘you owe something, this is what you owe, and this when it should be repaid. Legal action will be taken if you fail to make good on your debts’.
Ignoring a letter of demand will likely result in the creditor issuing a Statutory Demand. Under the Corporations Act 2001, a Statutory Demand is a formal, written request requiring payment of a debt within the statutory period (currently 21 days). Failure to repay this debt can lead to court action and the threat of insolvency.
What Do I Do When I Receive a Letter of Demand?
The first thing you should do upon receiving a letter of demand is to seek legal advice. Waiting too long before speaking to a lawyer can limit your options and may lead to much higher costs if proceedings are issued against you. A lawyer can help you determine the accuracy of the claim against you, and provide you with strategic advice on how best to respond to the letter of demand.
The next step is to assess your own records to determine the accuracy of the claim and identify which documents or invoices the other party relied on to make this claim. Sometimes, the reasons and amounts related to a claim can be incorrect, so it’s vital that you confirm the accuracy of the letter of demand before responding to it.
If the letter of demand is unclear or missing information, you may need to engage the claimant directly to clarify the details. Please note that you should only contact the claimant after seeking legal advice.
What Are My Options for Responding to a Letter of Demand?
The best way to respond to a letter of demand will vary from person to person depending on their circumstances and the nature of the claim. Below, we’ve included some possible scenarios along with some potential resolutions:
- The debt is owed in full, but you’re unable to pay.
Remember, legal proceedings are time consuming and expensive for everyone, meaning creditors are often just as reluctant to go to court as you are. If you’re unable to pay, they may be open to negotiate a payment plan or settlement.
- You dispute the debt in full.
A letter of demand doesn’t always reflect the full story, and you may wish to respond to the claim by setting out the reasons it’s not payable. For example, the debtor may be demanding payment for work they never performed, or for a debt that’s not yet owed under contract.
If you intend to dispute the debt in full, this correspondence should be marked ‘without prejudice’ to prevent your statements from being used against you in a potential litigation.
- You believe only part of the debt remains outstanding and dispute the debt as it was set out in the letter of demand.
You may wish to respond by explaining why you dispute the demand, referencing relevant invoices and documents where necessary. Your response needs to be accurate and free of prejudice, so take the time to gather all the information, and resist the temptation to respond aggressively. You should also mark all correspondence ‘without prejudice’ so that your statements can’t be used against you if the matter escalates to litigation.
Remember, avoiding court proceedings is often the best outcome for everyone, so the claimant may be willing to negotiate a settlement or payment plan to avoid court.
If none of the scenarios above apply to your situation, it’s vital that you seek legal advice to help you determine the best course of action after receiving a letter of demand.
Received a Letter of Demand? Get Expert Guidance Today
Receiving a letter of demand can be intimidating, especially if you weren’t expecting it. The good news is, there are plenty of options for responding, negotiating, and settling matters without having to go to court.
Our friendly team of legal professionals are always here to help you determine the best course of action after receiving a letter of demand, and can assist you in crafting the perfect response. Get in touch today to find out more.
DISCLAIMER: This article is intended to provide general information and should not be relied upon as legal advice. Formal legal advice should be sought if you are concerned about, or require particular advice applicable to your specific circumstances in relation to, any topics covered in this article.