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.