Credit and Debt

Credit and Debt

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Summary of key steps in a credit and debt matter

Key steps in running a credit and debt file

  1. Instructions – take instructions using the Taking Instructions checklist.
  2. Financial counsellor – if your client is happy to, make an appointment for them at a financial counsellor (the wait can be 4 – 6 weeks).
  3. Statute barred – consider whether the debt is statute barred (see The Debt is Old) before contacting the creditor in writing and before the client makes any payments.  If your client is being contacted in relation to an old debt, send this letter.
  4. Documents – get together copies of necessary documents:
    1. the original credit contract or contract for service and bills and correspondence from the creditor or debt collector (use this letter to request information regarding goods and services contracts and this letter for consumer credit contracts);
    2. relevant codes of practice for the industry or particular creditor;
    3. if proceedings have been commenced, copies of any court documents (and go to step 5);
    4. expert reports (from your client’s GP, caseworker, drug and alcohol worker, housing worker, psychologist, psychiatrist or other relevant professional – using this letter setting out your client’s circumstances.
  5. Lodging a defence – if proceedings have been commenced, unless a defence is lodged within the relevant timeframe (21 days in the Magistrates’ Court of Victoria), judgment can be entered in default.  You may need to lodge a defence even to buy time to negotiate (although keep in mind that the creditor’s enforcement costs will increase as a result).  
  6. Putting a hold on enforcement – if proceedings have not been commenced, you should:
    1. for non-credit contracts, contact the hardship team of the relevant company, inform them that you are acting for the client who is experiencing serious disadvantage and you are in the process of obtaining further instructions.  Ask them to put a hold on any enforcement.  You can use this letter to do this; or
    2. for credit contracts:
      1. confirm whether a default notice that is compliant with section 88 of the National Credit Code, Schedule 1 of the National COnsumer Credit Protection Act 2009 (Cth) (the Code) has been provided to the client (including giving at least 30 days notice to remedy the default); and  
      2. if your client has been given a Code compliant default notice, you should request postponement of enforcement proceedings under section 94 of the Code.  This must be done within the period specified in the default notice, which cannot be less than 30 days.  You can use this letter to do this

        If the company does not agree to put a hold on enforcement (or your client has not been given a Code compliant default notice in the case of credit contracts), lodge a complaint with the relevant External Dispute Resolution scheme.  Review the rules of the specific EDR scheme before doing this.  
  7. Judgment proof and bulk negotiation – work out whether the client is judgment proof (and wants to rely on this).  If they are and do, work out whether the creditor is part of the Bulk Negotiation Project:
    1. if the creditor is part of the Bulk Negotiation Project, follow the steps set out under Bulk Negotiation;
    2. if the creditor is not part of the Bulk Negotiation Project, proceed to step 9 via 7(c); and
    3. keep in mind that your client does not have to pay anything if they are judgment proof and should be advised of this.  Depending on their circumstances (for example, a young person who hopes to obtain employment as opposed to a long term DSP recipient with little likelihood of receiving an income or inheritance in future), the client may decide not to enter into a payment plan – refer to Judgment Proof.  If this is the client’s position and the creditor or debt collector continues to contact them, send this letter
  8. Short term measures – if your client is experiencing short term difficulty with credit or debt and they just need time to find their feet, consider whether a utilities relief grant or hardship variation would be appropriate. 
  9. Negotiation or dispute resolution – consider which approach to take:
    1. if your client wants or needs to rely on being judgment proof, negotiation with the creditor or service provider on the basis of the client’s hardship may be the best approach (with a view to getting the debt waived – however, keep in mind 7(c) above, which points out that it may be better for your client not to pay at all than to enter into a payment plan that they cannot afford when they do not have a legal obligation to do so).  This letter seeks a negotiated waiver based on hardship;
    2. if there has been some conduct by the creditor (for example, things listed in Things to Look Out For or Defending a Claim) which is problematic and presents the possibility of a defence being available to your client, it may be appropriate to pursue a complaint via Internal Dispute Resolution; and
    3. if IDR or negotiation are unsuccessful, use External Dispute Resolution by engaging the relevant industry ombudsman (importantly, enforcement will be put on hold while the ombudsman considers the dispute (confirm with reference to the rules of the specific EDR scheme)).  
  10. Judgment debts – if it is a judgment debt, but no enforcement order has been made, try to negotiate with the creditor to prevent enforcement.  In rare cases, it might be possible to apply for a rehearing or to appeal the original decision. 
  11. Secured debts and mortgage arrears – if the debt is a secured debt (including mortgages and other loans secured by a car or house), you will need to act quickly to postpone repossession (including, if necessary, by applying under section 94 of the Code to postpone enforcement pending negotiation).  You should also confirm that the creditor has complied with section 88 of the Code in issuing a default notice.