Debt Collection Stages
Most people have never been behind with a debt before, and consequently have not had to deal with debt collectors or the courts. If you have debt collectors calling you and are in the process of having debt collected, you might be scared, confused and a little intimidated. Most people do not know what debt collectors can and cannot do or the time frames that they must follow. This page outlines each stage from when you defaulting on the debt. Debt Collectors utilise State Legislation, so these stages may vary dependent 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 to be serious. During this period, you may receive reminder calls or statements indicating that your account is overdue. However, after 60 days, your creditors may increase pressure on you by employing a professional debt collector. These are call centres that specialise in the collection of outstanding debts.
Stage 2: Default Notice/S80
Under consumer credit codes (which are implemented by each state government), the creditor must notify you that you are in default with your debt, usually by mail after 60 days with a Default Notice/S80. You then have 30 days to make up the overdue payments and cover 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 a Letter of Demand, stating that you must 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. They indicate that 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 five 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, which 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 five 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; or
- File for a debt agreement, personal insolvency agreement or voluntary bankruptcy; when your 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 judgment to the creditor. The Judgment Debt may include interest and the creditor’s court costs. Judgment debts are recorded on your credit history. The creditor then has 12 years to take further action.
Stage 6: Enforcement
The creditor has four options to enforce the judgment. They have to apply to the court to have these enforced. Creditors will pursue the option that will bring them the greatest return of money.
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, a court warrant maybe issued for your arrest.
The court will order your employer or bank manager to make regular deductions from your wages or bank account and give the money to the creditor. These deductions can be quite large. You cannot garnish government benefits; however, if they 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 cannot take property protected under the Bankruptcy Act.
For debts greater than $2000, your creditor can make you bankrupt. This will allow a trustee to sell assets, such as your house or car, and in some circumstances receive income contributions (a deduction from your wage). This would be considered as the most severe enforcement. For more information on bankruptcy and income contributions, please refer to our bankruptcy page.