A letter of demand is usually the first step a creditor will take to try and get you to pay them money. This might be because of a debt or because they say you owe them money after a car accident.
The letter may say:
If you are unsure if you owe the money, if the debt is more than six years old or if the car accident happened more than six years ago, you should get
Whenever you write to the creditor, you should make sure to only include things that you may want to rely on in court. You should double check any money amounts and dates to make sure they are correct. If you disagree that you owe the money claimed or that you were at fault in the car accident, it is also important that you don't write anything in your letter that admits you owe the money or were at fault.
Make sure you keep a copy of the letter of demand and your written response. Also, make dated notes of any telephone conversation you have with the creditor
You have five options when you receive the letter of demand:
Here is some more information about these options:
You may agree that you owe part or all of the money that the creditor is asking for. In this case, you should think about the following issues before writing back to the creditor:
It is a good idea to get help working out what payments you can afford from a financial counsellor. You can find a free financial counsellor through the website of the
Financial Counsellors' Association of NSW (FCAN).
In your letter you should include information about:
When the creditor has your response to the letter of demand, they will decide whether to accept your offer, 'write off' all or part of the debt, or take the case to court.
An agreement to pay the debt by instalments is informal, but you should still record the agreement in writing. For more information, see
Settling the case and
Sample agreement for payment by instalments.
Even after making an instalment agreement, the creditor can still start a court case about the debt. This is more likely to happen if you miss some of the instalment payments.
For more information, see
Sample responses to letters of demand.
If the claim against you is about a car accident, see
Sample responses to letters of demand - Car Accidents.
You may decide, after reading the letter of demand, that you don't owe them all or some of the money or you don't think you caused the accident. If this is the case, you should write back to the creditor and tell them why you don't think you owe the money.
If the creditor does not accept your denial, they may start a court case to get the money.
If you don't know whether or not you owe money to the creditor because they didn't give you enough information, you can write back to the creditor to ask for more information. This is known as a 'request for further and better particulars'.
In your letter you should be careful not to admit or deny that you owe the debt. You should ask the creditor for information and documents that will help you decide if you owe the money, including:
Depending on the creditor's reply, you can work out whether or not you owe the money.
For more information, see
Sample letter asking for further and better particulars.
Ignoring a letter of demand is not a good idea. You should remember that a letter of demand is the first step for many creditors before they start a court case. If you do nothing, you may miss the chance to sort the problem out before you end up in court.
Instead of court, a creditor may invite you to go to mediation to try and sort out how much money is owed. Alternatively, you could propose going to mediation when replying to a letter of demand.
You can contact the
Community Justice Centre (CJC) to arrange a free mediation session. They will contact the creditor to arrange a suitable date.
At mediation there is an independent person, called the mediator, who helps the parties try and settle their dispute through discussion and negotiation. The mediation is confidential and all discussions are 'Without Prejudice'. This means that anything said during the mediation cannot be used against a party if the case goes to a court hearing later.
If you have come to an agreement at mediation, it is a good idea to put it in writing, for your own records and as evidence, if the creditor goes to court later on.
If you want to write to the creditor to offer to settle the matter, you can write the words 'Without Prejudice' on your letters. This means the letters and emails sent between you and the creditor as part of your negotiations usually can't be used as evidence if a claim is later made in court.
For an example of a written agreement that releases you from further claims after a car accident, see
Sample Release - Car Accidents.
For more information on mediation, see
For further information, see
Responding to a letter of demand - Frequently Asked Questions.
Community Justice Centres