If you haven’t paid your bills or debts soon after the due date, your creditor will probably send you formal notices or letters requesting prompt payment. Debt collectors and creditors may also commence a process to recover the debt by initially starting to call you and demanding payment.
- Default notice
- Letter of demand
- What creditors can and can’t do
- When a debt collector becomes involved
- Debt collectors: your rights
- Your options for dealing with the debt
- Disputing a debt
- If a debt collector is acting illegally
If you have borrowed money from a company for personal purposes and you are behind on the debt, your lender or creditor (under consumer credit law), will issue a Default Notice.
Under section 88 of the National Credit Code, the Default Notice must:
- specify how you have failed to comply with the requirements of the credit contract; for example, which payments you have not paid according to the contract or that you have failed to maintain insurance on a car that is security for a loan;
- specify the action required to remedy the default; (for example, pay the arrears)
- the period of time in which you must do so; and
- notify you that if you fail again during the period of the notice (at least 30 days) to pay according to the contract, the lender will commence proceedings to enforce the contract.
If you still haven’t remedied the default within the time allowed, the creditor, their solicitors or a debt collection agency may repossess secured goods, start court proceedings or demand repayment of the whole debt, not just the arrears.
Letter of demand
A letter of demand comes from your creditor or debt collector and usually warns that if you don’t pay the debt within a certain time period (often seven days) they intend to sue you in court to recover the debt.
Letters of demand are not court documents.
Letters of demand are often the last letters a creditor will send you before suing you. If you receive one you must make yourself aware of your legal rights; clarify whether you actually owe the creditor; and check that you owe the amount demanded.
Check the details and request an itemised account to clarify all details if you receive a letter of demand from a creditor or their agent. You should also check that the creditor has not run out of time to sue you for the debt. If you’ve made no payments towards, and have not acknowledged in writing that you owe a debt for a period of six years, you may not have to pay it.
Seek advice from a financial counsellor if you believe the debt fits this description.
What creditors can and can’t do
Providing they do so lawfully, creditors can:
- write to you or ring you and demand payment (there are rules around how, when and how often they can contact you about an outstanding debt);
- take you to court to recover their money if they follow the correct procedures (they can usually seize and sell any property used as security for the loan or credit unless you have repaid more than $10 000 or 25% of the amount of credit under the contract, in which case the creditor needs a court order to repossess the goods);
- obtain an order from a court to take some of your property, such as a home or a car worth more than $7,700 (indexed annually) even when they don’t have a security; and
- sell the debt to a debt collection company which has the same power as the original creditor to enforce the debt.
- have you sent to prison;
- take or sell any of your property that they don’t hold a security over unless they have an order from the court: or
- threaten, physically intimidate or harass you (neither can they have their agents do this).
When a debt collector becomes involved
If your creditor is not willing to wait for payment, they may either engage a debt collector to pursue the debt or sell the debt to a company that specialises in debt collection. In the latter case, you will owe the money to the company that purchased the debt.
Make all requests for information from the debt collector in writing and always ask for written proof that you owe the debt before you pay it. You should also ask for written proof that the debt collector is authorised to pursue the debt.
Keep a record of all contact from the creditor or debt collector, including dates and times of calls and the name of the person you spoke to.
Debt collectors: your rights
It’s important to know your rights when dealing with debt collectors. Like some of your creditors, debt collectors are required to consider your request for a variation to payment arrangements when you are experiencing hardship. They cannot seize your property unless it is secured by the loan and the loan is in default, or they get a court order against you for your property, and they cannot take your everyday household items.
You can ask another person, such as a financial counsellor, to represent you in dealings with the debt collector. You may also request that the debt collector doesn’t contact you at a particular place, such as your workplace, but you must provide details of where you can be contacted.
Debt collectors can only contact you between specific hours on certain days of the week and they cannot:
- make more than three contacts per week by letter or phone;
- make more than 10 contacts by any means in any month; and
- make face-to-face contact more often than once a fortnight.
Debt collectors can only visit your home or workplace if there is no other way to contact you, and they must comply with a request by you that they do not attend your workplace and they may not discuss your finances in front of your co-workers or anyone else.
Your options for dealing with the debt
If a debt collector is pursuing you for an outstanding debt you owe your options include:
- offer to pay by instalments to get the debt collector off your back while you’re looking for other options to pay
- seek a variation of your repayments on the ground of hardship
- offer to pay a lump sum that is a percentage of the debt as full and final settlement
- ask for the debt to be waived if you have no assets or income and cannot pay
- do nothing and wait to be sued for the debt. If you have no assets, nor the income to pay the debt (for instance, if you are on Centrelink benefits), waiting may not affect you in practical terms. If you choose this option, any court order made against you will be listed on your credit report for five years
- apply for voluntary bankruptcy.
You should seek the advice of a free financial counsellor for help on which is the best option for you. For example, you may be unsure what amount to offer to settle your debt. It will depend on how old the debt is, what your income and assets are and the difference between what you offer and the total amount due.
Disputing a debt
If you are contacted about a debt you do not owe (or if you disagree with the amount of the debt being claimed) you have a right to dispute the debt. You may dispute a debt on the grounds that:
- it is not your debt;
- you have already paid;
- you disagree with the size of the debt; or
- it is an old debt and you haven’t made a payment for at least six years, no court judgement has been entered against you and you haven’t admitted in writing that you owe the debt in that time.
If you are unable to resolve the dispute you may refer the matter to the relevant external dispute resolution scheme if the debt relates to a telco, a utility bill or a loan such as a mortgage or credit card. You may do this at no charge, but member organisations must pay and must comply with the scheme’s decision.
If a debt collector is acting illegally
Despite state and federal consumer protection laws, allegations of harassment, coercion and other problems by debt collectors are often reported.
The most effective way of stopping unfair or illegal debt collection activities is to first send a written complaint. If it persists you may issue proceedings in VCAT or complain to the relevant industry external dispute resolution scheme. Seek legal advice about the best option for you.
You may also lodge a complaint against the debt collector with the Australian Securities and Investment Commission (ASIC) or the Australian Competition and Consumer Commission (ACCC). Send a copy of your correspondence to the debt collector and keep a copy for your own files.