Whilst not being an economics professional, there appears to be a possibility of an upcoming recession. I believe it would be prudent to have one’s debts under control should there be further tightening on the economy.
This is such an in-depth topic and always depends on each person’s individual set of circumstances and the size of the debts in question. However, as a general discussion, we provide the following
DEBTS
What are your rights and steps that you should take as a debtor?
The obvious first steps that you should take if you believe that you may have issues meeting your debts in the future are:
- Keep a very close eye on your purchase and spending habits. Can you do without all of those subscriptions and streaming services which you have?
- Ensure that your bill payments are a priority over other forms of spending.
- Call your service companies and review your plans, insurances, mortgage interest rates, etc.
- Sell off any assets that you really do not need.
Should you find yourself in a situation of not being able to meet your debts, you could try to gain control over the outcome by considering the following:
- Negotiate with your credit card companies and request a reduced interest rate.
- Contact your service companies, advise that you are having financial difficulties and attempt to arrange a payment plan that would assist.
- Consolidate your debts or refinance. Take out one loan in an amount which will pay off the total of all of your debts. One single monthly payment will most likely amount to less than all of the separate payments that you were making.
- Offer to repay in reduced instalments. When negotiating with a creditor keep detailed notes and records of contact, and the terms of that contact.
- Seek a repayment variation of monies owed by you. In a situation where you have been ill or suffered a loss of job, you may be able to vary loan contract due to hardship. Variation may take the form of reducing repayments until your circumstances improve.
- Offer a lump sum. It is possible that a creditor will accept a reduced lump sum to finally settle a debt.
- Request that the debt be waived. If your position is one in which the creditor has no hope of monetary recovery, a simple request for debt waiver may actually be accepted so that all parties save further legal costs and effectively ‘cut their losses’.
- If you do nothing and wait until a lawsuit actually commences, you run the risk of being sued. If you have no assets or funds to pay the debt, this may not affect you in practical terms. However, be wary that any court judgement will be listed on your credit report for five years and judgement debts can be enforced over a time period of many years. If your income circumstances change for the better, the creditor may continue with his action to collect from you.
- File for bankruptcy. This option is open to you, however, before taking it, you should seek both legal and financial counsellor advice and assistance.
- Obtain whatever further assistance is available to you. Please check the contact details of all financial counselling or legal advisory services in your area. These services are extremely useful for you to understand and fully protect your position.Some links are available at the end of this document.
If you are disputing the claimed liability, it is in your right to request proof of the alleged debt. Until they do so, they are not able to continue to intimidate you.
The key is to at all times you should contact your creditors and debt collectors to advise that you are experiencing financial difficulties. It may also be prudent to speak to a financial advisor or solicitor.
Debt Collection Procedure
Should you be unable to arrive at a satisfactory arrangement with your creditors, the following action may often occur:
Oftentimes, the company to whom you may owe the money may choose to arrange a collection agency to recoup the monies which a creditor owes them. As there is a financial incentive for the agency to collect/recoup as much of the debt that it can, the agency can sometimes be overzealous in its collection practices. That is why there are laws to which these agencies must abide such as not to: harass, threaten action which they are not authorised to do, threaten action (legal or otherwise) that they are not planning to carry out, misrepresent their entitlement to seize goods, etc. For example, they are not legally able to contact anyone other than the actual debtor to discuss the debt owing. Contacting employers, family and relatives is nothing sort of unconscionable conduct on their behalf. There are avenues for complaint via the ACCC (see end of document)
The following means can be used by your creditor/collection agency to collect the funds owing:
- take legal action to collect a debt
- conduct legal repossession activities and other legal enforcement of legitimate security interests
- seek and obtain pre-judgment remedies, for example, court orders to prevent the removal or transfer of property from the jurisdiction
- enforce judgment through a court process—including examination hearings, instalment orders, orders for the seizure and sale of property, garnishment or attachment orders
- undertake all necessary procedures (for example, for serving documents) associated with these actions.
It is not advisable to ignore court orders.
INSOLVENCY/BANKRUPTCY
INSOLVENCY is the term used to describe a financial state in which a debtor cannot meet debt payments when they fall due. In simple terms, “there is not enough money to pay debts”, i.e. you are insolvent.
BANKRUPTCY is the legal process that arises when a person is unable to repay debts as they fall due and are declared insolvent.
Should there be no probability of obtaining funds nor the opportunity to mediate for debt negotiation, you could be faced with selling your house/business to pay out your debts to avoid bankruptcy. It is really at this stage that you can take control of your financial destiny rather than wait for a bankruptcy trustee to force you to sell your house/business, as well as making you bankrupt. If the Trustee or Bank takes control of your house sale, they will only be concerned with achieving a quick sale at a price which allows them to recoup your debt. This is why it can be advisable to get in front of the process and sell prior to things getting out of hand.
If you declare bankruptcy, it will affect your ability of obtain credit as well as your ability to be a company director (nor possibly be involved in the management of your company) for a period 5 years. Further restrictions or obligations may be made by the Court. Consideration also needs to be given to your Superannuation Fund and the management thereof.
The Australian Competition & Consumer Commission (ACCC) has enacted Guidelines for Collection of Debts. Below is a link to the Guidelines:
The ACCC has also put together a Guide for you to help you with Dealing with Debt Collectors.
https://www.accc.gov.au/system/files/A5_Dealing%20with%20debt%20collectors_16December2020.pdf
If you find yourself requiring legal assistance, there are Legal Aid Centres in each State who, (if you qualify)can provide free legal aid. Should you not be able to quality, you will need to contact someone for legal consultancy services.
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