I owe the debt and the amount is correct – What can I do now?
If you have considered the points earlier and agree that you owe the money, you have some choices. It is best to contact the creditor as soon as possible even if you cannot pay. Ask the creditor to hold action on the debt while you work out your options, set out below. Then once you are clear about your options you can get back to creditor with an offer or request.
Your options include:
- Asking the debt be waived
- Repaying the debt in full or offering a smaller lump sum amount
- Asking for a payment arrangement
- Filing for bankruptcy
- Doing nothing
There is more information about each option below. First though and before you decide what to do work out your financial position and read the information below 'What if my only income is from a Centrelink payment?' and 'What if I am in financial hardship?'
How do I work out what my financial position is?
Having a money plan for your average income and expenses (e.g. average for a fortnight or month) will be very helpful. It can give you a snap shot of your situation, what is available for your most important or essential expenses and what is (or is not) available for your debts.
For useful money planner, visit the Money Smart website.
If you need help to work out your income and expenses or options contact a financial counsellor on 1800 007 007. They will also help with negotiations with your creditor and can offer you alternative options.
What if my only income is from a Centrelink payment?
Your Centrelink income is intended to pay your living expenses, and is generally not available to non-government creditors.
A creditor or debt collector cannot make you repay a debt from a Centrelink payment if you do not agree to do so. They must also make sure that they do not mislead you into believing you must make a payment from a Centrelink payment.
A court cannot make you repay a debt from a Centrelink payment if you do not agree to do so.However, Centrelink and childsupport debts can be taken from you Centrelink payments. You need to also take into account any Court fines.
If the debt is linked to an ongoing service such as electricity, phone or rent, the creditor may be able to take action other than making you pay from your Centrelink payment. This could include disconnecting your service.
If you have assets (e.g. your house or car) the creditor can take court action to get a warrant of sale on assets or put a charging order over your house (see 'Enforcement'). Note that assets do not include basic household goods such as your fridge, washing machine or household furniture.
What if I am in financial hardship?
If you cannot meet regular repayments on debts such as a personal loan or home loan for a short time (e.g. because of temporary illness, unemployment or relationship breakdown) you can ask the credit provider for a hardship variation. Many businesses including credit, energy, phone and internet providers, insurance companies and local councils have staff to assist customers in financial hardship. There are laws or other requirements for these businesses to listen to their customers who say they are in financial hardship and provide them with special arrangements to assist them while they remain in financial difficulties.
Remember to ask to speak to someone about hardship if this is the case. You need to tell the business everything about your situation. If they still do not agree to help you with your hardship, ask to speak to a supervisor or other person.
What can I say to a business if I cannot pay and am in financial difficulty?
Contact the business and:
- Say that you are in financial difficulty and explain your circumstances
- Ask what options there are for you or request an arrangement that will help you for a period of time
Short term arrangements may include postponing, reduced payments or even make no payment for a period of time (up to 3-6 months). Other financial difficulty options that may assist include paying by instalments (e.g. fortnightly repayments of energy bills or council rates) or organising payments to line up with your pay day. Avoid borrowing more money to deal with short term debt - it is better to arrange things around your current income rather than get into further difficulties.
What if my situation does not improve and I cannot return to normal or full payments?
If your financial situation does not (or is not likely) to improve in the short term (three to six months), you may wish to consider other options. These might include reducing your expenses, selling an asset, requesting a waiver, or as a last option filing for bankruptcy.
Seek assistance from a financial counsellor to help discuss your hardship options with the creditor.
Ask for waiver of the debt
You could ask for a waiver if you cannot make any payment and particularly if you are on a low income such as a Centrelink pension or benefit, you have not assets (e.g. do not have a mortgage or own your own home) and your position is unlikely to change. See a financial counsellor for assistance on how to ask for a debt waiver.
Repay the debt in full
By paying it this will mean the debt will not increase because of court costs and interest being added. Do not do this if you really cannot manage to pay without causing more debt or financial hardship to you or your family.
Offer a reduced lump sum to finalise the debt
Sometimes a creditor may agree to accept a reduced lump sum payment. A debt collector may have bought your debt from the creditor for a reduced amount and will accept a lower amount to pay it out. This may be an option but think about whether you can really manage the payment.
Negotiate a repayment arrangement
You can try to negotiate a payment arrangement with the creditor or debt collector by asking to pay at a later date, payment by instalments or reducing the regular payments. However make sure that your repayment plan is realistic – do not commit to a plan if you think you might still have trouble paying. Do not be afraid to tell the creditor if you cannot make any payments.
If the creditor does not respond to your request, and continues to threaten legal action, you may be able to take the matter to External Dispute Resolution. Remember your options are limited with debts linked to ongoing services (such as current energy account or council rates).
Section 182 of the Local Government Act 1999 provides that local councils may, if satisfied that a ratepayer is suffering hardship, postpone payment of rates on terms. If you are struggling to pay your rates, ask the Council for help with a payment arrangement or even postponement until you can get back on track.
This can seem like the easiest option. However, if you ignore a debt, you will probably still get the calls and the letters and eventually a court claim, whether you owe the money or not. The debt will also get bigger with costs and interests added once court action starts. Your credit record is likely to be affected and may affect your ability to obtain credit in the future.
File for bankruptcy
Bankruptcy is a way of saying “I can’t pay my debts!” The general effect of bankruptcy is to wipe the slate clean, however in most cases it should be considered as the last resort.
The advantages of bankruptcy include:
- You would be released from your debts including debts that may go or have gone to court.
- Necessary household furniture and personal things cannot be taken in bankruptcy. Vehicles and tools or trade worth less than a certain amount cannot be taken.
The disadvantages of bankruptcy include:
- You may still have to pay certain debts such court fines, child support and tax.
- A trustee, who is appointed to manage your estate, can sell your assets such as a house to pay the debts.
- You may have to make contributions if you earn over a certain amount (currently $41,823.60 for a single person with no dependants) and indexed each year.
- Bankruptcy lasts for a period of 3 years but it is noted on your credit record for 7 years from the date your bankruptcy starts.
- Some restrictions on overseas travel and your ability gain employment in some roles.
If you need talk about your options including bankruptcy seek help from a financial counsellor. See also the chapter on Bankruptcy.
What about my credit rating?
For further information, see the section CREDIT RATINGS.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.