Many claims for damages arising from car accidents never get to court but are settled beforehand. Settling a claim before a complaint/summons is issued, or at some stage before the actual court hearing, will reduce the amount of legal costs and can often be a cheaper way out. Also, court hearings are very unpredictable and a case can be won or lost for a wide variety of reasons. It can depend on the evidence of any independent witnesses or the credibility of each of the parties.

The first step is normally the letter of demand from the car owner or insurers, which says that unless certain damages are paid a complaint/summons will be issued. Such letters should not be ignored.

You can deny liability (perhaps indicating why a claim against you would fail), threaten a counter-claim for your own damages, question (without accepting any responsibility) the amount of the damages claimed, or negotiate a settlement. If you believe that the collision was not all your fault, a settlement proposal can be made by predicting what the decision of a court would be and calculating settlement on the basis of the examples given above.

If you cannot afford to pay the money claimed it is sometimes possible to offer to pay by instalments. It could be useful to provide documentary evidence of your financial position e.g. a photocopy of your pension card. This may be better than waiting for legal costs to be added to the damages. The other person is not obliged to accept payment by instalments. An offer to pay by instalments, indicating that that is all that you can afford to pay, should be put in writing with a statement that if the offer is refused a copy of the letter will be produced in court on the question of costs. Sometimes people (and particularly insurance companies) accept less than the full amount, provided it is paid immediately in cash, rather than waiting for instalments.

If you are experiencing difficulty repaying a debt arising from a car accident to an insurance company due to illness, unemployment or another reasonable cause, and you reasonably expect to be able to discharge the debt if repayment terms are arranged, the insurance company is required by the General Insurance Code of Practice (see: Chapter 23*1 Codes of Practice) to work with you and provided you co-operate, consider extending the period of repayment, reducing the amount of payments or postponing payments for an agreed period. If you are unable to reach an agreement with the insurance company about repayment of the debt, it is required to advise you of its complaints handling procedures and the existence of Australian Financial Counsellors and Credit Reform Association (AFCCRA) (at www.afccra.org) for referral to a not-for-profit, free financial counselling service.

If you are making a total loss claim and there is an insurance company on the other side, you may find that they offer to pay you less than you are claiming. They will sometimes, however, pay more than stated in their first offer. You should be prepared to produce evidence of the condition and market value of your car to support your claim (see: "Damages", below).