Someone is chasing me for a debt - what do I do?
Dealing with money and debts can be stressful. Every situation is different, but this article sets out some common concerns and options about what to do if someone is saying you owe them money.
Free financial information is available for people being pursued by creditors or debt collectors. You can find them by calling the National Debt Helpline on 1800 007 007 or find a local counselling service through National Debt Helpline website (here).
If you need legal advice about your specific circumstances, or if you need our help in dealing with the creditor, please contact our office.
Someone is saying I owe them money, what should I do?
If you owe someone money you are a debtor. The person or company you owe money to is the creditor.
Debt collectors sometimes chase a debt for the creditor, this means you can negotiate with the debt collector or the creditor. Other times, the debt collector may ‘buy’ the debt from the creditor. This means you must negotiate with the debt collector. Sometimes you may be contacted by a lawyer who is acting for the debt collector. If this is the case, you should negotiate with the lawyer.
Everyone’s situation is different, which is why it is good to speak to a financial counsellor. We have set out some options that usually apply to debt matters so you can start considering your options. The following information is taken from the Financial Rights Legal Centre (here) website and we recommend that you look at the resources on their website for more guidance.
Is the debt invalid?
The alleged debt could be invalid for various reasons, including:
· you have already paid the debt
· you didn’t receive the goods or services the creditor says you did
· you were misled about what you were agree
· you were pressured or forced into a loan (for example because of family violence of financial abuse)
· the loan agreement was unfair or predatory (for example, if the creditor knew you could not afford it)
· the creditor is pursuing the wrong person (for example, if you have the same name as the debtor)
· the debt is from a long time ago. If the loan was made more than 6 years ago (or 12 years in some cases), the creditor/debt collector may be prohibited from getting it back.
What to do if the debt is not valid
If you think the alleged debt is invalid, you should:
· Get legal advice and or financial advice as soon as possible.
· Tell the creditor/debt collector you do not believe you owe all or part of the debt, that you dispute their claim and that you want it investigated. Ask for copies of all documents relating to the debt. The Financial Rights Legal Centre has sample documents that you can use (here).
· If you agree you owe some of the debt, but not all of it, you could start making some repayments but dispute the rest of the debt. It is important to be clear about the part of the debt you dispute.
· If the debt collector/creditor threatens legal action or insists that you have to pay the whole amount, lodge a dispute with an external dispute resolution scheme (EDR). You can check to see if they are part of a scheme by using the Australia Financial Complaints Authority search tool (here). An EDR can help you to negotiate with the creditor or debt collector on a more even footing.
· If they are not part of a scheme, you may need to lodge a defence in court. You should speak to a lawyer as soon as possible.
What to do if the debt is valid
Below are some of the options that often apply to debt matters. However, every situation is different so it is important to speak with a financial counsellor about your circumstances.
· Pay the debt in full – if you are in this position, this could be the best option to make the problem go away. However, it is important to consider the impacts of this. Will you have enough to live on after paying it? Do you have other debt payments?
· Negotiate a payment plan
o Figure out how much you can pay and the frequency (e.g. fortnightly, monthly). This is a good time to speak to a free financial counsellor.
o Contact the creditor/debt collector. Tell them you are experiencing financial hardship and want negotiate a payment plan. A financial counsellor may be able to help with this, or you could get an EDR involved to help you negotiate.
o If they agree, make sure to get the agreement in writing. If your situation changes, you may need to re-negotiate your plan.
o If they do not agree:
§ Keep paying the amount that you can, even if they say it is not enough.
§ Complain to the relevant EDR scheme. Most creditors and debt collectors are members of AFCA. You can complain to AFCA that the creditor/debt collector won’t give you a reasonable payment plan. Any collection action stops will AFCA look into your complaint.
· Offer a smaller lump sum to finalise the debt - the creditor or debt collector may accept a lump sum less than what you owe to finalise the debt. This will depend on the company and your particular case. If they agree, get the agreement in writing. Any acceptance letter from them should say the the amount you are paying is “full and final settlement of all monies owed”.
· Do nothing - If you cannot afford to repay the debt, you have no property that could be sold or income at risk of being taken and you don’t expect that situation to change long-term, you may choose to do nothing. In NSW the creditor/debt collector usually has 6 years to start court action to collect a debt (or 12 years if it’s a deed or a mortgage). But if they do start action in time, and get a NSW court judgment, they have another 12 years to enforce any court judgment they get against you. If your circumstances change and you get income or property during this time, you may have to pay the debt plus interest and court/legal costs. Before taking this option, we recommend speaking to a financial counsellor.
· Consider bankruptcy - If there is no way you can pay all your debts, you could consider bankruptcy. It can be a fresh start, but there are consequences you need to think about. You should get free financial advice before taking this option.
BEGG LEGAL has helped many clients with their debt matters, and would be happy to help you in this stressful time.