First steps
If you are behind in repaying a debt you owe, your creditor (the person or organisation you owe money to) can usually charge you a higher rate of interest, as well as seek to recover its legal and enforcement costs in pursuing the debt. There are a number of options available to creditors, depending on the size of the debt. These include appointing a third-party debt collector or taking you to court for the money you owe them and/or for possession of any secured property (for example, your home, if you have given your creditor a mortgage over your house).
If you think you may start struggling to repay your debt, tell your creditor about your situation as soon as possible. Ask them to put a hold on your debt while you see a financial counsellor or get legal advice. You can try to change your repayment plan with your creditor by asking for more time to make payments or to pay back what you owe in instalments. Tell the creditor what you can afford to pay and how much time you think you need.
A financial counsellor can help you work out how to pay back your debt, write up your budget, and communicate with your creditors. They can also refer you to other services that may be helpful with family support, gambling or personal issues. Contact the National Debt Helpline on 1800 007 007 to learn more.
Hardship variation
If your debt is a credit card, personal loan or home loan, you can apply for a hardship variation to change your contract with your creditor. A hardship variation can give you more time to pay (called 'extending the length of a loan'), reduce the amount you are paying with each instalment, or give you a break from paying anything.
It can be very difficult to negotiate or seek a hardship variation from a creditor after they have taken court action against you. For this reason, you should always apply for a hardship variation before a creditor takes you to court.
Before making your request, it is advisable to have copies available of all relevant documents or other evidence that you intend to rely on. You might be asked to provide information about your income and expenses when you apply for financial hardship assistance. Be prepared to show:
- the reason you are experiencing hardship
- your current income
- other major financial expenses – for example, other loans
- what repayments you can afford
- evidence that you are expecting future funds which are delayed (for example, an insurance payout).
Hardship variations may not be available for all products, like loans for investment properties. It is worth checking with your credit provider to see if you are eligible.
If your creditor does not agree to the variation, you can take the matter to the Australian Financial Complaints Authority (AFCA), an external dispute resolution scheme. AFCA will talk with your creditor and try to work out an agreement. In some situations, AFCA may require your creditor to vary your contract. However, they will only require your creditor to vary your contract if you can prove that you will be able to repay your debt in full. You may also be asked to provide evidence that AFCA’s assistance will help you.
If you have a business debt, you can still try to change your repayment plan with your creditor. A financial counsellor or legal service can help you do this (see Where to get help). AFCA is also able to receive complaints from small businesses. AFCA defines a small business as an organisation with less than 100 employees. This can be a partnership, incorporated trustee, a company, or a non-for-profit organisation, as well as some clubs and some charities. You can read more about hardship variations at the ASIC MoneySmart website.
From 1 July 2022, if you agree to a financial hardship arrangement with your lender for a credit card, personal loan, car loan or home loan, your repayment history will be safeguarded by the introduction of a new type of indicator on your credit report. It will flag that a special payment arrangement is in place due to financial hardship. The credit report will not include the reason for the hardship arrangement, nor the details of the arrangement.
Debt collectors
A creditor may appoint a third-party debt collection agency to pursue you for debts. These debt collection agencies either purchase the debt (including the rights to enforce the debt) from the creditor or act on the creditor's behalf in pursuing the debt. They will attempt to contact you in a number of different ways to discuss its repayment.
In cases where a creditor is unable to reach you, they may hire the services of a skip-tracing agency, which can use a variety of unconventional means to attempt to contact you (for example, house visits or contacting your family).
While a creditor is entitled to appoint a third-party debt collection agency to pursue you for debts you owe, it is worth keeping a log of how often they contact you, the date and time of contact, the name of the debt collector, how they contacted you, and what was said.
Debt collectors are allowed to contact you, but they must ensure their actions do not constitute harassment. This means any contact must be for a legitimate purpose, be made within reasonable hours, and not be excessive. More importantly, debt collectors are not allowed to threaten you with any legal action that they are not legally permitted to take, nor are they permitted to threaten to seize goods they have no entitlement to. Debt collectors are also under an obligation not to breach your privacy by revealing certain information (like the fact that you have outstanding debts) to any third parties without your permission.
If you feel like you are being harassed or threatened by a debt collector, call the National Debt Helpline on 1800 007 007 for advice or make a consumer complaint with the Australian Competition and Consumer Commission (ACCC) or AFCA.
Further information on when debt collectors can contact you and what they can do is available on the ACCC website. The ACCC and ASIC have jointly produced a guideline for debt collectors and creditors.
Going to court
If your creditor decides to pursue legal action against you to enforce the debt, they will inform you by either sending you a letter of demand or serving you with court documents (for example, a complaint or writ). The court documents will state how much money the creditor believes you owe them. When this occurs, it is important that you get legal help immediately to understand your rights and obligations, because responding quickly is essential. If you do not understand the contents of a creditor's demand, you should contact the Consumer Action Law Centre, which specialises in debt and credit matters. You can also contact your local community legal centre.
A deadline to respond will be specified in the demand you receive. If you do not submit a defence in time, a court order will likely be made against you requiring you to pay all the money you owe (not just the arrears), plus interest and court costs. In the context of a loan, creditors are entitled to seek payment of the full outstanding balance and not just the arrears once a court order has been made. This can be significant if the outstanding loan is a home loan. If the debt is secured by your home, car, or business, it is likely a court will also order the repossession of that asset.
Once a creditor has obtained a court order, they will have enforcement powers like the ability to repossess certain items you own or direct your employer to pay part of your wages directly to the creditor. For more information, see our page on Judgment debt options.
You may still apply for hardship variation after you have been served with court documents, but once a court has made an order against you, creditors are often very unwilling to consider any further requests for hardship.
Credit listing and credit reports
Your credit file is maintained by different independent credit reporting organisations, such as Equifax Australia, Experian, and illion. Having an outstanding debt (where repayments are late or in arrears) with a creditor will entitle the creditor to register this on your credit file. Depending on the length of time the debt has been outstanding and the amount overdue, the creditor may list the details of the outstanding debt on your credit file, which is publicly available to all credit providers in Australia. If you have made a hardship request, there are restrictions about whether a creditor may disclose your overdue payments to credit reporting organisations. Your credit score will decrease each month your debt remains outstanding, as creditors report on it monthly.
A poor credit rating will have an impact on your future ability to gain credit, as you may be considered high-risk. Consequences of this can including higher pricing or outright rejection.
To find out if a court order has been made against you in the past, you can order a copy of your credit report, which will have this information. Your credit report also has information about your credit history, including requests for loans (as well as applications for mobile phones and utilities), late payments, and unpaid debts. You can obtain a free copy of your credit report once every three months. Otherwise, it is available from Equifax Australia for a small fee.
To learn more about credit ratings, including how COVID-19 may have impacted the reporting of credit ratings, the Australian Retail Credit Association has published a guide (PDF) that gives an overview on how credit ratings work.
Note: if you request your credit report, your contact details will then become available to any creditors who check your report. To order your credit report, visit the Equifax website (formerly My Credit File).
Disaster support
If you are affected by a disaster, your local fire station, police station, and evacuation centre will be able to provide you with food, shelter, and other essential services, or tell you where you can go to access them.
If you have insurance, you should contact your insurer as soon as you can. You may be covered for things like emergency accommodation. If you are in urgent financial need, you may be able to ask your insurer to make an advance payment. This will be deducted from the total value of your claim. For more information, see our page on Insurance.
If you are directly affected by a disaster, in a disaster-declared area, and meet the eligibility criteria, you may be entitled to financial assistance from Centrelink, including:
- A disaster recovery allowance – a short-term income support payment that you may be entitled to if you can show that your income has been affected as a direct result of a disaster. The payments continue for 13 weeks
- A disaster recovery payment – a one-off payment that you may be eligible for if you meet the means-tested criteria and are adversely affected by a major disaster.
If you are eligible, you will need to apply through the Services Australia website. A financial counsellor may be able to help you with this. For more information, see our page on Emergency and crisis assistance.
Early access to superannuation
You may be entitled to access a portion of your superannuation early in certain circumstances, as determined by the government. Superannuation funds only permit such an early release if the funds are being used to stop your creditor/lender from repossessing your family home (as opposed to an investment property), for medical reasons (or paying expenses to do with the medical needs), or due to the death of someone dependent on you. There are other limited special circumstances which allow people to obtain an early release of super – these will need to be discussed on a case-by-case basis with your superannuation trustee.
Some people on certain Centrelink payments can access a portion of their superannuation early if they are facing severe financial hardship. You need to contact your superannuation provider to see if you can do this.
While an early release of your superannuation may seem like an attractive option, it can have serious short and long-term consequences. Before exploring this option, you should seek professional advice from a financial advisor. The National Debt Helpline can help you find a free financial counselling service in your area who can assist you with this.
If you are applying to access your superannuation early on compassionate grounds, apply to the Australian Taxation Office. Apply straight to your superannuation fund for any other reason.
There are different forms depending on your reason for wanting to release your superannuation early, so make sure you use the right form. If your application is refused, contact a financial counsellor or get legal advice.
In certain circumstances, such as seeking an early release of superannuation to prevent the repossession of your home, the Australian Taxation Office will require certain items from your creditor (your lender/mortgagee) supporting your request. In these circumstances, it is important to check if your lender/mortgagee has any requirements for its cooperation in relation to your request. A lender/mortgagee may not be willing to cooperate if they consider this to not be a viable solution. If this occurs, you should speak to a financial counsellor immediately.
The amount of tax you pay on an early release of superannuation depends on the type of withdrawal. Contact the Australian Taxation Office on 13 28 61 to find out how much tax you will have to pay.
For more information, see our page on Superannuation – early access.
Disputing debt
If you disagree with the amount owing or believe you have been incorrectly charged, you should first lodge a complaint with your creditor and clearly outline in writing the reasons for your disagreement or dispute. Most creditors will have a specialist team to deal with such complaints. You may be entitled to request a copy of your statements for any credit products you have used, which you can review to see exactly what repayments or charges have been applied to your account. If the debt is a credit card, personal, or home loan debt, creditors have a legal requirement to hold and provide you with statements of account showing the amount owing. Other creditors, such as utility companies or phone companies, will also be required to show you a full breakdown of the relevant charges you have incurred.
If your creditor is unable or unwilling to resolve this dispute, you can then use a third-party dispute resolution scheme. Depending on the nature of the dispute, you should contact one of the following organisations:
- AFCA will assess the merits of your complaint and has the power to have the creditor put any legal action on hold, depending on the nature of the issue
- The Energy and Water Ombudsman handles disputes relating to utilities such as gas, electricity or water bills
- The Telecommunications Industry Ombudsman handles disputes relating to internet, phones, mobile plans, or any debts associated with these products (including monthly lock-in contracts etc)
- If you wish to dispute a debt you owe to a small business (for example, a gym), you may file your complaint with the ACCC by making a consumer complaint. More information can be found on the ACCC website.
Where to get help
For legal information and referrals, call Disaster Legal Help Victoria on 1800 113 432 (Monday to Friday, 8 am to 6 pm). You can also contact your closest community legal centre to get advice from a local lawyer.
For more support options, see Other organisations that can help or find Other ways to contact us.
Financial Counselling Victoria
Financial Counselling Victoria (FCV) provides free information, advice, advocacy and support for people experiencing financial difficulty. FVC also provides resources and support to financial counsellors.
Call (03) 9663 2000, Monday to Friday, 9 am to 5 pm or visit the Financial Counselling Vic website.
National Debt Helpline
Offers free financial counselling and help dealing with debt. Call 1800 007 007, Monday to Friday, 9.30 am to 4.30 pm.
Or you can use the chat button at the bottom of the National Debt Hotline website (available Monday to Friday, 9 am to 8 pm).
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