Worrying about how to deal with debt collectors is a question not many people pose to their nearest and dearest.
But the fact is that many ‘good’ people fall into bad debt, based on unexpected (and unwelcome) circumstances, such as physical illness, death of a loved one, redundancy, disability, the effect of a relationship breakdown (and a financial settlement), or mental health issues.
Unfortunately, dealing with the debt is, too often, ‘handled’ by not dealing with it.
But the truth about debt – and debt collectors chasing money you owe – is that, no matter how worried, ashamed or stressed you might feel by your debt issue, the problem won’t go away unless you take action.
If you have debt that you feel too embarrassed to discuss with someone who cares about you, it’s important to seek professional advice. And it doesn’t have to cost you anything. Depending on your circumstances, you may be able to access free financial counselling and legal advice from services that have helped many people through difficult debt-related times.
If you’re at the point where you’re receiving legal letters, threatening court proceedings, it’s time to act and seek legal advice. If you’re in the early stages of debt collection, a financial counsellor, or your accountant, if the debt collection action is related to business/tax debt, may be able to act on your behalf.
These services are a good starting point:
- Call the free National Debt Helpline on 1800 007 007 from 9.30am to 4.30pm, Monday to Friday (mobile phones may incur a fee) or visit moneysmart.gov.au to find a financial counsellor near you.
- If your debts make you feel anxious or depressed, see a doctor or get help from support services such as Lifeline (call 13 11 14) or Beyond Blue (call 1300 224 636).
- Community Legal Centres of Australia have offices in each state and territory, to assist with legal support.
With the right support and guidance, you can learn how to deal with debt collectors and pay down the debts, before mounting interest and late payment penalty fees make your debt even bigger.
Know your rights when dealing with debt collectors
If you’re being hounded by a debt collector, it’s important to know your rights and understand what a debt collector can and can’t do in pursuit of the money you owe.
According to the Australian Competition and Consumer Commission (ACCC), a debt collector should only contact you for ‘a reasonable purpose’ and only when necessary.
Coercion, harassment and physical force or intimidation of any kind are all illegal.
Acceptable reasons for contacting a debtor
There are situations where contacting a debtor may be reasonable. The list of acceptable reasons can include:
- giving information about the account and money owed
- making a demand for payment
- accurately explaining the consequences of non-payment, such as legal remedies the debt collector or creditor can seek, or service restrictions that may apply, such as disconnection of a service
- arranging for repayment of a debt
- suggesting a payment plan
- reviewing existing payment plans after an agreed period
- finding out why the debtor has not responded to contact
- asking why an agreed repayment arrangement is not being followed
- investigating if the debtor has changed their address without informing the debt collector, when there are grounds for believing this has occurred
- sighting, inspecting or recovering a security interest, such as a vehicle.
Understand your responsibilities as a debtor
While knowing how you can be treated by a debt collector matters, the fact remains that they are chasing you for a reason. You owe someone – or perhaps multiple people/businesses – money, and those repayments need to be negotiated.
You can’t just walk away from debt. No matter how scary it might feel, it does need to be dealt with.
In the current climate of rising interest rates and cost-of-living pressures, you may find many larger companies are understanding and are open to reasonable payment plans. What they want most is communication that is clear and reliable. Some businesses, such as energy companies, are willing to listen to hardship applications and can sometimes reduce debts to help you get back on track.
Utility bills
As energy prices continue to rise and other price hikes make everything from the cost of petrol to food, rent and home loan repayments soar, falling behind on your utility bills is something that happens to many Australians. In winter, when access to adequate heating is an essential part of living a safe, healthy and comfortable lifestyle, it’s even more common.
Hardship assistance can help, but you need to call your provider and be put through to a customer service specialist.
You may find that late fees are waived, government rebates and concessions may be available and your contract could be reviewed to reduce your ongoing costs.
And then … once your energy bills are paid off, you can always shop around for a better deal with a different provider but make sure you compare apples with apples to actually save money.
Tax debt
Although getting a missed call from the ATO can seem like the most terrifying debt collector of all, the truth is that they can be quite reasonable, depending on your ability to communicate clearly and honestly about your circumstances. They are also willing to hear hardship applications if you meet their specific criteria and can put you on a payment plan to suit your situation.
Of all the organisations to be chasing you for money, they do have some power. With the ability to suspend bank accounts, or grab hold of your tax return money before it has a second to land in your own bank account. They don’t tend to take ‘no’ for an answer. If you have business tax debt, your accountant can (usually) negotiate with them on your behalf.
If you do need to make a payment plan, try to stick to it. If you do miss some, communication, again, is key – and can prevent a bad situation from escalating to a far more serious one.
You’re not alone
The latest Australian Bureau of Statistics (ABS) figures show average household debt grew by 7.3 per cent to $261,492 in 2021-22.
Being part of a cohort of Australians who do have mounting debt is not meant to be great news, though – just a reminder that, sometimes, things can happen. And it’s not your fault. Other times, people can live beyond their means by choice and show little regard for paying their bills on time.
Prioritise your debt repayments
If you fall into the latter category, remember that, as bad as it feels to be chased by debt collectors, it feels a lot worse to have delivered goods and services and then not been paid for your time and trouble. This is especially true of ‘mum and dad’ businesses you may owe – such as builders, gardeners, cleaners, dog groomers, or even that tab your local coffee shop let you run (and is now regretting).
Understanding how to deal with debt collectors is not about shirking your responsibilities.
If you owe someone in a small business, make a budget, be realistic and try to make some sacrifices that will help you make paying what you owe to other people a priority.
It might be tough for a while but it’s also tough for them, and by chipping away at your debts, one payment at a time, you’ll get those debt collectors off your back, and, hopefully, have less to lie awake at night about.
Are you responsible for someone else’s debt?
Generally speaking, you cannot be legally responsible for paying another person’s debts – even if that person is your child, partner or spouse.
However, that changes if you have legally agreed to be a co-borrower or guarantor for a loan and the person who holds the loan has defaulted on their repayments. You may also be responsible for a utility (water, gas or electricity) debt if you are a joint account holder – even if you no longer live at the address but your name is still connected to the bill.
Seek professional advice if:
- you agreed to be co-borrower or guarantor under pressure or through fear
- you did not understand the nature or extent of the commitment you were making.
Have you ever been pursued by a debt collector? Have you had to use a debt collector to chase a debt you want paid?
