Disaster Legal Help Victoria

Managing debt

I am having trouble paying my debts because I am experiencing financial difficulty. What should I do?

What to do first

Tell your creditor about your situation as soon as possible. A creditor is the person or organisation you owe money to. Ask the creditor to put a hold on your debts while you see a financial counsellor or get legal advice. You can try to change your repayment plans with the 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 with this. Financial counsellors provide free help for people with debt problems.

Hardship variations

If your debt is a credit card, personal loan or home loan (not a business loan) debt, you may also apply for a 'hardship variation' to change your contract with the 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 payment or give you a break from paying anything for a period of time.

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 and other major financial expenses, for example, other loans; and
  • what repayments you can afford.

If your creditor does not agree to the variation, you may complain to an external dispute resolution scheme, the Australian Financial Complaints Authority (AFCA). They will look into the details of your situation, talk with your creditor and try to work out an agreement between you and the creditor.

You can read more about hardship variations at the ASIC Money Smart website.

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. AFCA is also able to receive complaints from small businesses.  AFCA defines a small business as an organisation with less than 100 employees.

Financial counsellors

A financial counsellor can help you work out how to pay back your debt, write up your budget and communicate with creditors. They can also give you names and numbers of other services that may be helpful, such as for family support or for support with gambling or personal problems. Contact the National Debt Helpline.

What can the creditor do if I don’t pay the debt?

Usually a creditor can charge you a higher rate of interest once you are behind in your repayments, as well as seek to recover its legal and enforcement costs in pursuing that debt. There are a number of options available to creditors, depending on the size of the debt, and these include appointing a third party debt collector, or taking you to court to sue you for the money you owe them.

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, and will attempt to contact you in a number of different ways to discuss its repayment.

In some cases, where a creditor is unable to reach you they may hire the services of a skip-tracing agency which may use a variety of unconventional means to attempt to contact you (i.e. house visits or contacting your relatives or associates) in order to speak to you.

Whilst 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. Although debt collectors are allowed to contact you, they must ensure their actions do not constitute harassment (i.e. any contact must be for a legitimate purpose and within reasonable hours etc.). More importantly, debt collectors are not allowed to threaten you with any legal action that they are not legally permitted to take, nor threaten to seize goods they have no entitlement to. Lastly, debt collectors are also under an obligation not to breach your privacy, by revealing certain information (i.e. the fact that you have outstanding debts) to any third parties without your permission.

Further information on when debt collectors can contact you and what they can do is available on the Australian Competition and Consumer Commission (ACCC) website

The rules that debt collectors must follow are published by the ACCC and can be accessed via this link  https://www.accc.gov.au/publications/debt-collection-guideline-for-coll….

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 and make a consumer complaint with the ACCC or AFCA.

Going to court

Should a creditor decide to pursue legal action to enforce the debt, they will inform you by sending you a letter of demand or serve you with court documents (for example a 'Complaint' or 'Writ'). When this occurs, it is important that you get legal help immediately to understand your rights and obligations, because responding quickly is essential. Should you not understand the contents of a creditor's demand, you should contact Consumer Action Law Centre, which specialises in debt and credit matters, or the Federation of Community Legal Centres who can assist you with what to do next.

You will only have a short time to act, and a deadline to respond will be specified in the demand you receive. If you do not put in a defence quickly 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, once a court order has been made, creditors are entitled to seek payment of the full outstanding balance and not just the arrears (which 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 your home, car or business.

Once a creditor has obtained a court order, it will have a number of enforcement powers, including the ability to repossess certain possessions you own or direct your employer to pay part of your wages directly to the creditor. Please see Disaster Legal Help’s factsheet on Judgment Debt Options for further information.

It can be very difficult to negotiate or seek a hardship variation from a creditor after the creditor has taken court action against you. For this reason, you should always apply for a hardship variation before a creditor takes court action against you (you may still apply even if you have been served with court documents). Contact the Consumer Action Law Centre for advice and help with this. 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 a number of different independent credit organisations, such as Equifax Australia. 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, the creditor may list the details of the outstanding debt on your credit file, which is publically available to all credit providers in Australia. Your credit score will decrease each month your debt remains outstanding, as creditors report on it on a monthly basis.

A poor credit rating will have an impact on your future ability to gain credit, including higher pricing or outright rejection as creditors may consider you as high-risk.

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 file once every 12 months (if the application is made within 90 days of any application for credit being declined). Otherwise, it is available from Equifax 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 on its website which 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 (formerly My Credit File) website.

Do I have to make mortgage payments if my house was damaged or destroyed, or if my situation has changed because of a disaster?

You still need to pay your mortgage, but there are steps you can take to make this easier.

The first step is to contact your creditor/lender and request to speak with their hardship/financial assistance team. In response to the COVID-19 pandemic, many banks and other credit organisations have increased the capacity of their hardship teams as they have anticipated more requests for help.

When contacting your creditor/lender try to arrange a change to, or the stopping of, your repayments for a period up to 12 months. A financial counsellor can help you with this. Ahead of making your request, it is advisable to have copies available of all relevant documents or other evidence that you intend to rely on to support your request. This could be evidence of the damage or situation, or evidence that you are expecting future funds, which are delayed (i.e. an insurance payout).

If your creditor/lender does not agree to a pause or deferral of repayments, you could also apply for a hardship variation, which is a variation to the terms of your credit/loan agreement, which takes into account your current hardship. Such a variation could involve extending the loan term to reduce monthly repayments or increasing your repayments after a certain date. Hardship variations may not be available for all products (i.e loans for investment properties) however it is worth discussing this with your credit provider to see if you are eligible. You can also contact the Consumer Action Law Centre or Victoria Legal Aid for legal advice.

Can I access my superannuation to help pay my debts?

Checking to see if you are eligible

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 currently include a drawdown on superannuation due to hardship occurring from COVID-19, which entitle people to obtain an early release of super; however, these will need to be discussed on a case-by-case basis with your superannuation trustee.

Some people on certain Centrelink pensions can access a portion of their superannuation early. You need to contact Centrelink to see if you can do this. There are different numbers to call depending on what payment you are on. Check the Department of Human Services website for phone numbers and further information.

Consideration of future impacts

Whilst an early release of your superannuation may seem like an attractive option, it can have serious short and long term consequences and 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.

Making the application

If you are eligible, you will need to apply to get your superannuation early through the Department of Human Services. For information on how to apply, see the Department of Human Services website.

There are different forms depending on your reason for wanting to get your superannuation early – make sure you use the right form. If your application is refused, contact a financial counsellor or get legal advice. They can also help you apply.

How to apply depends on why you need the money. Apply to the Department of Human Services if you have compassionate grounds. Apply straight to your superannuation fund for any other reason. In this case, ask your superannuation fund how to apply.

In certain circumstances, such as seeking an early release of superannuation to prevent the repossession of your home, the Department of Human Services will require certain items from your creditor (i.e. your mortgagee) supporting your request for an early release of superannuation. In these circumstances, it is important to check if your mortgagee has any requirements for its cooperation in relation to your request. A 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.

You usually pay high tax on your superannuation if you get it early, often between 20 and 25 per cent. Contact the Australian Taxation Office on 13 28 61 to find out how much tax you will have to pay.

In response to the COVID-19 pandemic, the Australian Government temporarily modified superannuation rules so that a person who has been adversely financially affected by COVID-19 may access some of their superannuation early. This is in addition to any early release of superannuation on compassionate grounds discussed above.

Eligible persons can apply once in the 2020-2021 financial year to access up to $10,000 of their superannuation. This $10,000 limit is in addition to any funds released on compassionate grounds discussed above.

The Australian Government has advised that superannuation correctly released on grounds of COVID-19 related financial hardship during the 2020-2021 financial year will be tax-free.

For more information, please visit the Australia Tax Office website

What if I disagree with the amount I owe?

If you disagree with the amount of a debt owing under a loan you should contact your creditor immediately and raise this issue. 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 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. However, 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:

  • AFCA which has replaced the banking ombudsman. AFCA will assess the merits of your complaint and, depending on the nature of the complaint, it has the power to require the creditor to put any legal action on hold.
  • The Energy and Water Ombudsman, if your complaint relates to utilities such as gas, electricity or water bills.
  • The Telecommunications Industry Ombudsman, if your complaint relates to internet, phones, mobile plans or any debts associated with these products (including monthly lock-in contracts etc).

Lastly, if you owe a debt to a small business, which you wish to dispute (i.e. 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

National Debt Helpline

Tel: 1800 007 007, Monday to Friday, 9.30 am to 4.30 pm

Consumer Action Law Centre

Tel: 1800 466 477 or (03) 9629 6300 (legal advice line), Monday to Friday, 10 am to 1 pm

Consumer Affairs Victoria

Tel: 1300 558 181, Monday to Friday, 9 am to 5 pm

Financial Counselling Victoria

Tel: (03) 9663 2000, Monday to Friday, 9 am to 5 pm

Australian Competition and Consumer Commission (ACCC)

Tel: 1300 302 502, Monday to Friday, 8.30 am to 5.30 pm

Australian Taxation Office (ATO)

Tel: 13 28 65 (personal), 13 72 26 (business), 13 10 20 (superannuation), Monday to Friday, 8 am to 6 pm

Tel: 1300 131 060 (early release of superannuation), Monday to Friday, 9 am to 5 pm

Reviewed 01 December 2021