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Business & Company: Debt Collection

Home >> Legal Information Centre >> Legal Topics >> Business & Company >> Debt Collection

Frequently Asked Questions

You need to check the relevant legislation in your State and Territory, as the rules are different in each jurisdiction.

What should I do if someone owes me money?
- If someone owes you some money the best thing to do is talk to him or her about it. It may be that they have simply forgotten and with a gentle reminder the issue can be resolved.
- Sometimes people may want to pay you but for some reason are not able to pay you the full amount of the debt. In these cases it is a good idea to try and work out a payment plan over time to avoid costly court proceedings.
- If it becomes clear that this is a situation where the person will not or cannot afford to repay you the money then it is a good idea to get some advice from a lawyer about your options. You can look for one near you in our free Find a Lawyer directory.
- A lawyer can give you advice after taking into account:
  - all the circumstances of how the debt arose;
  - the steps you have taken to have the debt repaid;
  - the likelihood of you getting the money; and
  - an estimate of the legal costs if you take legal action.
- A lawyer can also take steps on your behalf to get the debt repaid.
  - They will usually ask the debtor for interest on the debt if it is an amount over $1000. This interest will accrue until the date they repay the debt in full.
  - Your lawyer is likely to start by writing a letter of demand to the debtor on your behalf. In many cases this will encourage the person to pay you the money without the need to take any further action.
- You can use our LegalPlan™ membership to ask lawyers for tenders or a Fixed Fee Quote in relation to your debt collection needs.
>> Read more & related FAQ's
What are the responsibilities of a debtor?
- A debtor has a legal responsibility to pay any debts that they owe. Where there is no argument about the debt then debtors should:
  - admit that they owe the debt and not attempt to avoid paying it as this will only increase the debt through the addition of interest and legal fees;
  - contact creditors and debt collectors when they are experiencing financial difficulties to try and work out a payment plan or some other variation for payment or another agreeable arrangement; and
- be honest and open about their financial position. This includes disclosing any other debts.
>> Read more & related FAQ's
Are there limits to what debt collectors can do when pursuing a debt?
- Many different laws in each state and territory affect debt recovery activity. The law covers issues such as:
  - when you can contact a debtor;
  - what privacy obligations you may owe to the debtor; and
  - what documents and other information you can request.
- It is against the law for a debt collector to do something that is unfair or unconscionable. For example they cannot exploit or take advantage of a person’s disability or their ‘special disadvantage’.
- A special disadvantage includes any condition or circumstance that affects a person’s capacity to assess situations and make decisions that are in his or her own best interests. It may include speaking poor English, being unable to read, being elderly or having little experience about business matters.
- The law sets out what a debt collector can and cannot do.
  - A debt collector can only make contact with a debtor if they have a reasonable purpose such as:
    
    demanding payment for a debt; or
    
    discussing a possible payment plan for the debt.
  - There are a number of things that a debt collector is prohibited from doing. These include:
    
    harassing or physically threatening the debtor;
    
    threatening the debtor with bankruptcy;
    
    threatening that the debtor’s house or other assets will be taken;
    
    making contact with the debtor at an unreasonable hour;
    
    repeatedly contacting the debtor beyond what is necessary;
    
    making contact with other people such as employers or family members without the debtor’s permission;
    
    making false statements about the amount of the debt;
    
    making false statements about who is liable to pay the debt; or
    
    engaging in misleading conduct such as drafting and serving a letter that has the appearance of being a court document.
- Any behaviour that is threatening or intimidating is illegal.
  - It is an offence for either a creditor or a debt collector to unreasonably harass a debtor to pay their debt.
  - If you do these things it will also work against you in your court case.
- The law and the court expect you to conduct yourself in a professional and reasonable way throughout the debt recovery process.
- If you have any concerns you can use our free and anonymous Ask a Lawyer service to get information specific to your situation.
>> Read more & related FAQ's
What is a letter of demand?
- You may have received a letter of demand. This is a formal letter which states that you:
  - owe a debt;
  - the amount of the debt;
  - the date the debt must be paid by; and
  - that if you do not pay the debt then legal proceedings will be started.
- The usual amount of time given to pay the debt is 28 days.
- If you have received a letter of demand the best thing to do is to pay the debt so that you are not charged any interest or legal costs in addition to the debt itself.
- If you cannot afford to pay the debt you must contact the writer of the letter and attempt to negotiate a plan to pay by reasonable instalments.
- If you do not believe that the debt is owed you need to contact the writer and explain your position to them. If they will not listen to you then you will need to get legal advice. Our free Find a Lawyer directory may help put you in touch with the assistance you need.
>> Read more & related FAQ's
How should I respond to a letter of demand?
- If you have received a letter of demand then you need to read it very carefully. It is a good idea to check that you do in fact owe the money and the exact amount that is stated. So check:
  - that you agree with the circumstances of how the debt arose; and
  - how they have calculated the amount owed.
- If you have any doubts or just want to check the debt is correct then you will need to contact the writer and ask for more information.
  - You may need to ask for a copy of:
    
    the invoice or receipt;
    
    contract;
    
    statements; or
    
    any other relevant documents that prove the existence of the debt.
  - It is best to make this request in writing. You should also clearly ask that they provide you with all this information before taking any further steps against you.
- There are some cases where a seller has not complied with the law. In this case the consumer contract may not be enforceable or it may be only partly enforceable.
- This is important because it impacts on whether or not the debt can be:
  - enforced in full;
  - partly enforced; or
  - in some cases not enforced at all.
- This will impact on what options are available to you. If you have any doubts about whether you owe the debt or whether it is enforceable you should seek advice from a lawyer. You can use our Phone a Lawyer service to get a preliminary consultation about your situation.
>> Read more & related FAQ's
What should I do if I dispute a debt?
- In some cases you may dispute the debt. If you believe you do not owe any money you should speak to a lawyer and get legal advice about your situation.
- A good first step is for you or your lawyer to write a letter to the creditor. You should explain the reasons why you do not believe you owe them the money.
- In many cases the creditor will accept what you have written and decide not to take any further action against you.
- Even if you are sure that you do not owe the debt you should never ignore the creditor and hope they will go away.
>> Read more & related FAQ's
What should I do if I have already paid the debt?
- If you have received a demand for payment for a debt that you have already paid then you should immediately contact the creditor.
- You should write to them and state that:
  - you have paid the debt;
  - the exact date that you paid the debt; and
  - include any supporting documents that proves this such as:
    
    bank statements;
    
    a receipt; or
    
    an invoice.
>> Read more & related FAQ's
What should I do if I receive a statement of claim?
- If you have been served with a statement of claim you need to respond to it.
- If you ignore it there can be serious consequences such as a creditor making an application at the court and getting a judgment against you. This is something you want to avoid.
- Generally the statement of claim will give you 28 days to take action. This is counted from the date of service. This time frame may be different in your state or territory. Our free Find a Lawyer directory can put you in touch with a lawyer who can advise you on how long you have and what you need to do.
>> Read more & related FAQ's
What should I do if I cannot afford to pay the debt?
- Sometimes you may not be able to afford to pay the debt in full. In these cases you can try and negotiate with the creditor and come to an arrangement about repayments over time.
- In cases where you have borrowed money from a bank or from a finance company then you will need to speak to someone about a hardship variation. If they will not listen to you then you can make a complaint to the Financial Ombudsman or Credit Ombudsman service depending on who your lender is.
- You are free to try and negotiate an agreement with the other party at any time up until the court gives its judgment. You can do this after a statement of claim has been filed.
- If you agree with the debt but cannot afford to pay it in full then you can try to negotiate with the creditor. You might:
  - offer to make payment over time in instalments;
  - offer to pay a reduced lump sum amount;
  - ask that they simply write off the debt;
  - ask that the debt be postponed to give you more time to pay; or
  - propose a combination of these options.
- It is up to the creditor to agree to your proposal. Some of these options may not be available in all circumstances.
- When you write to the creditor it is important that you tell them about your financial situation so that they get a good understanding of your circumstances. You should explain in detail about your:
  - Income;
  - Expenses;
  - dependents;
  - debts; and
  - any other relevant circumstances.
- If your reason for not being able to pay is only temporary then you should tell them this. It may be that you have some special circumstances due to illness or employment that means you cannot pay now but that you will be able to pay in the future. In these cases you can ask the creditor for a moratorium (a postponement of payments) for a set period of time. You should also ask that they not charge you any interest during this period before payment.
- There are some situations where you will not be able to pay the debt for a long time but you have access to a smaller amount of money. You might have access to a small inheritance, a compensation payment, a loan from family or money from the sale of an asset. In these cases you can ask the creditor if they will accept this smaller amount immediately in full satisfaction of the debt. A creditor may accept your offer as they will at least get some money for the debt.
- Remember to conduct your negotiations in writing. Any final agreement with the creditor should also be in writing and you need to make sure both you and the creditor have signed the document. Make sure the document states that the payment is in full and is accepted as final settlement of the debt. This will help to protect you if any further dispute about the debt arises down the track.
>> Read more & related FAQ's
What is the process at a debt collection court hearing?
- You will need to go to court on the date allocated for your debt collection hearing.
- Well before the hearing both parties will need to have filed their written evidence with the court registry. If you have any supporting witnesses then you will need to file their statements as well. If you have a lawyer then they will prepare and file all relevant documents with the court well before the hearing date.
- At the hearing the court will read all the evidence and listen to both the creditor and the debtor. The court may ask you both questions to clarify some of the information you have provided in your statements.
- Generally your evidence will be tested if the amount in dispute is over $10,000. This means you will be cross-examined (asked questions) by the other party’s lawyer.
- The court will then make a decision. If the court makes a judgement debt in favour of the creditor then you will be required to immediately pay the debt and also pay the legal costs which the creditor has spent chasing the debt. There are some cases where you may still be able to arrange to pay the amount in instalments. You should make sure your lawyer raises this with the court so that it can be written in the court orders.
- You must pay the debt within 28 days or you will have to pay interest as well. This time frame may be different in your state or territory and you should check with your lawyer or court staff about the rules that apply to you.
>> Read more & related FAQ's
What happens if someone does not pay a judgment debt?
- The court has a range of options if you do not pay a judgment debt. Some of these options carry more serious consequences than others:
  - you may have to go back to court and explain your financial position in which case you risk:
    
    being declared bankrupt; or
    
    having your company wound up.
  - the court can issue an order that your employer or your bank start making payments towards your debt either from your salary or other income; or
  - the court may make an order for some of your goods to be seized and sold to raise money towards repaying the debt.
- If the court has ordered you to pay the debt on an instalment plan and you miss 2 instalments you could be imprisoned for contempt of court. You would still need to pay the debt after your release.
- Remember that as long as the debt is unpaid you will be liable for interest on both the debt and any legal costs the creditor incurs.
>> Read more & related FAQ's
What commercial issues do I need to consider when collecting a debt?
- If the debt is less than $10,000 then you need to be realistic. If you need help from a lawyer then legal and court costs will add up quickly. Sometimes the costs of recovery may amount to more than the debt.
- Remember that court cases can be extremely stressful and they take time and effort. It is a good idea to take these factors into account as well as the money owed when deciding what steps to take.
- Most businesses do not want bad debts and want to resolve debt recovery issues quickly and efficiently. To do this they need to ensure they have processes in place that minimise the risk of bad debts and effectively recovery money when required.
- A good way to avoid the extra costs and time spent chasing debts is to have clear procedures in place when making a sale or offering a service. This includes having template letters, contract documents and other legal documents that make everything clear to both parties.
- If you do need to recover a debt then remember to always maintain a professional approach. It is also a good idea to review your procedures to see what is working well and what can be improved.
- While you do have a right to pursue debts through the courts remember that you are also required to comply with consumer protection laws.
- As problems arise ask yourself what can be learnt from this incident and what could be put in place to avoid the situation arising in the future.
>> Read more & related FAQ's

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LegalPlans

Free Legal Information Centre

Practical legal information written by lawyers to help you make informed choices.

Legal Guides

FAQs

Q&A by Lawyers

Glossaries

Articles

Business & Company: Debt Collection

Frequently Asked Questions

View more Information on Debt Collection

Connect with a Lawyer