5 Financial Planning Tips For Getting Out Of Debt
You’re not at the mercy of your creditor if you find yourself in debt. DG Institute founder and CEO Dominique Grubisa lets you in on several secrets that can help you stop debt collectors harassment and escape debt and move towards your new horizon.
How to deal with debt?
- Understand why you can’t pay
- Don’t think of yourself as a criminal
- Let them chase you
- Lodge a AFCA complaint
- File a defence
Most people don’t know that they can negotiate their way out of debt by negotiating with debt collectors.
They think that they have two options:
- Constantly rob Peter to pay Paul so they can keep servicing their debts.
- Go bankrupt.
Neither is a desirable option as each leaves you in a precarious financial situation.
Negotiation is the third option that so many people aren’t aware of. As the Financial Rights Legal Centre puts it:
“Debt negotiation is a negotiation between a debtor and creditor (or creditors) to settle a debt on terms which are beneficial to both parties. Sometimes a creditor may be willing to accept a lower amount than the actual debt figure if they receive the amount as a lump sum.”
This is actually a fairly restrictive definition. It does not account for the various things that you may be able to do to get you out of debt now, instead of at some point in the future.
This article examines some of the secrets for getting yourself out of debt.
Secret #1 – Understand Why You Can’t Pay
Usually, you can’t pay your debt for one of two reasons.
The first is that you’ve entered a period of financial hardship. A change has occurred between when you got the loan and now. For example, you may have had an accident that prevents you from working. Or, you may have gone through a divorce that affects your financial position.
The good news is that Australia’s National Credit Code (NCC) offers you protection in such cases. This code obligates the lender to work with you if you’ve had a change in circumstances since creating the debt. This may involve reducing debt payments, extending loan term, or even freezing the debt until you’re back on your feet.
The second reason is that the loan was a case of irresponsible lending. This occurs when a lender approves you for a loan that you can’t reasonably service.
The NCC comes into play again here. Lenders have an obligation to act responsibly, which means they can only lend to people who can service the debt.
In technical terms, they need to abide by Chapter Three of the National Consumer Credit Protection Act 2009. According to ASIC, this means:
“…Credit licensees must not enter into a credit contract with a consumer, suggest a credit contract to a consumer or assist a consumer to apply for a credit contract if the credit contract is unsuitable for the consumer.”
In either case, the onus is on the lender to fix the issue. As long as you notify them of your circumstances, they’re legally obliged to negotiate with you.
Secret #2 – Don’t Think of Yourself as a Criminal
It’s natural to feel incredibly responsible when you find yourself in debt. You signed the deal and you feel like you’re breaking a contract.
While that may be true, it’s important that you don’t start thinking about yourself as some sort of criminal because of it. You haven’t committed a crime so you don’t need to feel guilty about it.
A loan contract is just business. Things go wrong with business all of the time.
Imagine that somebody’s paid money for a shipment of grain. That grain gets loaded onto the ship, which sinks at sea during the transportation period.
That’s called a frustrated contract and it’s exactly what occurs when you find yourself in debt.
Circumstances, often beyond your control, have led to a situation that prevents you from fulfilling the contract. This is a civil issue, rather than a criminal one.
This means that you don’t have to do anything to rectify the situation yourself. Ignoring debt collectors phone calls and tearing up letters still won’t get you facing criminal charges for finding yourself in debt.
Now, can creditors take you to court?. They sure can they could sue you or even pursue bankruptcy proceedings. However, they don’t want to do that as this usually means they receive little, if anything, out of the case.
The important thing here is that you don’t guilt yourself into thinking that you’ve broken the law. Your debt issue is just one of many breached contracts that have occurred in business over hundreds of years.
Secret #3 – Let Them Chase You
As mentioned earlier, the onus is on the lender to collect the debt.
They’re going to do several things to try and get that money back. Whilst being harassed by debt collectors. You don’t necessarily have to respond to this harassment. In fact, you could use it to build a case to stop debt collector harassment if their efforts go beyond ASIC’s regulations. Debt collectors have to work within certain parameters, which they sometimes fail to meet when chasing money.
The lender may also conduct searches on you. Their purpose is to find out if you have any assets that they could pursue.
Ultimately, they may choose to take you to court. This is almost always a last resort.
The point with all of this is that you’re under no obligation to chase the lender so you can make repayments. That’s especially the case if they’re unwilling to negotiate with you. Allow them to chase you but don’t take any drastic action, such as making yourself bankrupt, in an effort to solve the problem.
If they won’t negotiate, you can make use of the next secret…
Secret #4 – Lodge a AFCA Complaint
The Australian Financial Complaints Authority (AFCA) is an alternative dispute resolution body. ASIC operates it and it provides another level of consumer protection.
It offers you a way to air disputes if you’re unable to afford to go to court to fight against a lender.
You’re able to go to the AFCA website and lodge a complaint about your lender. Best of all, this service is free to use. For example, you could complain about a lender’s failure to work with you if you’ve had a change in circumstances. You could also complain about harassment from debt collectors such as harassing phone calls from debt collectors.
That complaint goes to the lender automatically and AFCA grants you 45 days to negotiate the situation. They also pause all recovery action, including pending court cases, to allow you to resolve the situation.
Typically, this action results in the lender contacting you to open negotiations. You’ll speak to a trained complaints handler who can help you to remedy the issue.
There’s also no negative aspect of lodging the complaint. It gives you time to figure out your circumstances and you’re able to withdraw your complaint at any point.
Secret #5 – File a Defence
If the lender takes you to court, they often do so under the assumption that they’ll get a default judgement. This essentially acts as the rubber stamp for them to pursue bankruptcy proceedings against you.
They don’t expect you to file a defence against their case.
That’s exactly why you need to do it. Filing a defence means they can’t pursue a default judgement. Instead, they will have to start building a case against you, which takes time and money.
You can use this time to lodge a complaint via AFCA in an attempt to start negotiations. Again, the lender will usually want to go down this route because pursuing bankruptcy often means they get nothing.
Escape Your Debt
You’re not in a hopeless situation if you’re in debt and dealing with constant letters and calls from a creditor.
There are several options open to you, each of which enables you to open negotiations with the lender. You also have the option to do nothing because the onus is on the lender to chase you.
The key is that you don’t panic and start thinking of yourself as some sort of criminal. Instead, treat the debt as the civil issue that it is and use these secrets to try to resolve the issue.
If you want to learn how to get out of debt and avoid bankruptcy by dealing with creditors and debt collectors, you can book an appointment with one of our debt specialists now.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.