Credit and Debt

Credit and Debt

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Negotiating with the creditor

If your client's circumstances do not fall within one of the legal defences referred to in Things to Look Out For and Defending a Claim, it may be the case that you need to negotiate on the basis of your client's hardship.

A number of creditors now have hardship teams dedicated to considering the circumstances of customers or debtors experiencing difficulties (these teams are required under a number of industry codes of practice referred to under External Dispute Resolution). 

You should first work out whether the relevant creditor has a hardship team and obtain the contact details for that team.  This team will be the most appropriate contact point for nearly all of our clients. 

You should obtain clear instructions from your client as to what they are seeking from the negotiations.  They may want or need the debt to be waived in its entirety, but they may just want a manageable payment plan to be set up.  It may be an option to have fees and interest waived and set up a payment plan for the remaining amount.  While it is important to manage your client's expectations (i.e. the best case scenario may not be likely), it is also important to work out what they actually want and what is feasible.    

In order to work out what is feasible for your client (and, later, for the purposes of explaining your client's hardship), you should prepare a monthly or fortnightly budget which sets out how much money your client receives (through, for example, wages, Centrelink, superannuation and/or Work Cover) and what their expenses are for that period.  For the great majority of clients, there will be very little money left over to furnish their debt.  It is important that your client does not overcommit when proposing or entering into a payment plan. 

A sample budget is set out below: 

Expense

Amount per fortnight

Rent or board

 

Mobile phone

 

Groceries and food

 

Public transport

 

Child support

 

Other bills

 

TOTAL

 

 

A more detailed budget tool is available on the Australian Government's Money Smart website.

You should use this to calculate how much the client has left over for any unanticipated expenses, including clothing or medical expenses.  It will sometimes be the case that your client will not be able to think of all their expenses when you ask, but that they will mention further expenses during subsequent conversations, which you should keep track of. 

The appropriate tone and content of the letter you prepare will vary significantly, depending on (a) your client's particular circumstances; and (b) the laws, policies and/or regulations that the particular creditor must comply with.  These sample letters may be helpful as a starting point:

Whether or not the client is judgment proof will also be relevant to negotiations (i.e. not just to enforcement after judgment is obtained).   For example, in the insurance company sample letter, the purpose was to point out that the client did not have the funds to repay the debt and to convince the creditor that there was no benefit in them proceeding to court to recover the debt. 

For some clients, especially the young or those likely to resume work, it can be worth discussing the option of the client putting aside a manageable portion of the amount owing and offering a once off, take it or leave it settlement on the basis of the payment.  The creditor may determine that receiving this amount is preferable to receiving nothing.  If your client instructs you to pursue this option:

  • make the offer available for a short term period (for example, one month) and then withdraw the offer if not accepted;
  • make sure the client actually has access to the money before making such an offer; and
  • confirm with the client that offering this amount will not inflict further hardship on them or their friends or relatives.