The Debt Collection Process

The Debt Collection process can be confusing and intimidating.  Most people do not know what actions creditors can take, what will result from those actions and the time frames they will take place in. As it can frequently involve the court system this may lead to you feeling like a criminal, which is not the case.  This guide aims to give you a general overview of the Debt Collection Process in Australia.  Debt Collection utilises State Legislation so these stages may vary dependant on the state you reside in.

Stage 1: Arrears/Falling Behind

Generally creditors will allow you to fall 60-90 days behind with a debt before taking any action.  Many people miss one payment and it is not generally considered serious.   During this period you may receive reminder calls or statements indicating your account is overdue.  However, after 60 days you creditors may increase pressure on you by employing a professional debt collector.  These are call centres that specialize in the collection of outstanding debts.

Stage 2: Default Notice/S80

Under consumer credit codes (which is implemented by each state government) the creditor must notify you that you are in “default” with you debt.  You will be notified usually after 60 days by mail with a Default Notice/S80.  You then have 30 Day to make up the overdue payments and the next scheduled payment.  After this time the Default Notice/S80 expires.  “Defaults” may be listed on your credit history at any stage after the Default Notice/s80 is issued.  If you make up the requested payment collection activity will cease.

Stage 3: Letter of Demand

After the Default Notice/S80 expires and generally between 90 and 120 days after falling behind, creditors will issue you with a “Letter of Demand”.  This letter demands that you make a specified payment by a certain date, generally the full balance of the debt.  These letters are not issued by the court but should be taken seriously.  It indicates your creditors are serious about collecting on the debt.  At this stage a creditor will lodge a “Default”  with a credit reporting agency.  This may prevent you from borrowing money for 5 years.

Stage 4: Legal Action

If you fail to respond to the “Letter of Demand” your creditors will commence legal action against you. You will be served with a “Statement of Claim”.  This is a document issued by the local courts.  You have 28 days from the date you received it to make a response to the local court.  You have 5 options;

• Ignore it,
• Refuse to pay and defend the debt,
• Confess to the debt,
• Confess to part of the debt and still defend the debt
• File for a Debt Agreement, Personal Insolvency Agreement or Voluntary Bankruptcy, when you’re insolvency number is issued legal action will be suspended

Stage 5: Court

If the Court rules in favour of the creditor, you “confess”, or if you ignore the claim the court will award a “Judgement Debt” to the creditor.  The “Judgement Debt” may include interest and the Creditors court costs.  These “Judgement Debts” are recorded on your credit history.  The creditor has 12 years to take further action.

Stage 6: Enforcement

The creditor has 4 options to enforce the Judgement.  They have to apply to the court to have these enforced.  Creditors will pursue the option which will return the greatest amount of money to them.

Examination Notice

This requires you to report to court to have your financial affairs examined.  You will have to provide requested documents and answer questions about your financial affairs.  If you fail to attend court a warrant maybe issued for your arrest.

Garnishee

The court will order your employer or bank manager to make regular deductions from your wages or bank account and give them to the creditor.  These deductions can be quite large. You can not garnish government benefits. However, if these are deposited into a bank account, the account might be debited.

Writ of Levy of Property

This allows a Sheriff to remove items from your property to auction in order to pay the debt. Generally Sheriffs can not take property protected under the Bankruptcy Act.

Bankruptcy

For debts greater than $2000 your creditor can make you bankrupt.  This will allow a trustee to sell assets like your house or car and in some circumstances receive income contributions (a deduction from your wage).  This would be considered the most severe enforcement.  For more information on bankruptcy and income contributions please refer to our bankruptcy page.

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