Your rights and options
You have a number of options, as set out below, but in exercising them, you need to give careful attention to the terms of any offer or agreement that you make or sign. If you require assistance then you should contact a community legal service or a similar service (see ‘Services that can help with debt’, in this chapter).
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If you can afford it, one option is to contact the creditor and attempt to negotiate repayment of the debt by instalments.
Contacting the creditor
When dealing with the creditor, it is recommended that you keep detailed notes of any conversations you have with them, including the date and time of the contact, and the name of the person spoken to. It is even better to confirm your conversations in writing to the creditor, keeping a copy of all correspondence. Try to get an undertaking (in writing if possible) from the creditor that while negotiations are on foot, they will not initiate legal action or place a default listing on your credit report.
Making an offer to the creditor
If you make an offer to the creditor to repay the debt by instalments, it often speeds up the negotiation process if you can include with your written offer a statement of your financial position. This statement should support the offer you are making and show that even if the creditor sued you, they would not get more money from you.
Offers should state that they are made on a ‘without prejudice’ basis, which means that they cannot be used against you if court action follows.
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If you have a loan regulated by the NCC and you have fallen behind in your repayments due to a change of circumstances (for instance, you may have lost your job or suffered illness), you may be able to apply to the creditor for a variation of your loan contract on grounds of hardship. Such a variation might take the form of payments being deferred for a few months while you get back on your feet, or the creditor accepting lower repayments during this time. The request for variation should be made in writing. For a discussion of hardship variation applications under the NCC, see ‘Financial hardship’ in Chapter 5.8: Mortgages, consumer leases and other finance products. For more advice, contact the National Debt Helpline on 1800 007 007.
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If you have sufficient savings, another option is to contact the creditor and negotiate final settlement of the debt by offering a lump sum less than the debt amount. Many creditors will accept a reduced lump sum to finally settle a debt.
See ‘1 Offer to repay in instalments’, above, for what you should do when contacting a creditor and when making an offer.
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If you have neither assets nor the income capable of paying the debt, another option is to contact the creditor, outlining your circumstances and pointing out that any action taken against you would have no effect. On this basis, you could request that the debt be waived. Again, sending the creditor a statement of your financial position may speed up the process.
See ‘1 Offer to repay in instalments’, above, for what you should do when contacting a creditor. If the creditor agrees to release you from the debt, it is vital that you obtain written confirmation of this. In the confirmation, advice from the creditor that the debt has been ‘written-off’ is not sufficient. The written confirmation should state that you have been released from the debt, and the best protection is to have the settlement written up in a ‘deed’. Contact a financial counsellor for further advice. For contact details, see Chapter 5.4: Financial counselling services.
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A fifth option is to do nothing and run the risk of being sued. If you have neither assets nor the income to pay the debt, this may not affect you in practical terms anyway.
However, if judgment is entered against you in a court, it will be listed on your credit report for five years and the creditor can take steps to enforce the judgment indefinitely (subject to obtaining the court’s permission in some circumstances).
Your chances of getting credit in the next five years from the date of judgment will be severely diminished. Also, if you come into either assets or income after judgment debt is entered against you, they may be at risk of enforcement action by the creditor.
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A sixth option is to file for bankruptcy or to enter into a formal arrangement under the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’). See Chapter 5.3: Understanding bankruptcy, for more information about bankruptcy and agreements under Part IX (debt agreements) and Part X (personal insolvency agreements) of the Bankruptcy Act. See also the Australian Financial Security Authority’s website (www.afsa.gov.au).
Before contemplating bankruptcy, you should discuss your circumstances with a financial counsellor. (For the contact details of financial counsellors, see Chapter 5.4: Financial counselling services.)
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If you are not sure what to do, you can contact the National Debt Helpline on 1800 007 007 to discuss your rights and options.
If you would like assistance in both determining your options and negotiating with the creditor, contact a free government-funded financial counsellor in your area. (See Chapter 5.4: Financial counselling services.)
Your rights and options
Chapter: 5.2: Are you in debt?
Contributor: Julie Zhou, Barrister
Current as of: 1 September 2024
Law Handbook Page: 301
Next Section: If you are sued
