Debt Recovery

Dominique Grubisa
Dominique Grubisa

Published 2:39 am 31 Aug 2020

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Unfortunately, more and more Australians are getting deeper into debt. Even before the coronavirus hit, Australia had the second-largest level of household debt in the world. The average Australian household owed $350,000 pre-COVID-19, and the economic impact of the pandemic restrictions are likely to result in even higher personal debt levels.

Debt recovery

Whether it’s credit card debt, mortgage debt or some other form of borrowing, more and more Australians will inevitably need debt recovery help. Here, DG Institute Founder Dominique Grubisa outlines:

  1. what debt recovery means, the difference between debt collection and debt recovery
  2. how debt recovery works
  3. the debt recovery system – knowing your legal rights
  4. State debt recovery
  5. beginning your debt recovery process
  6. debt recovery services, strategies, plans, case studies and success stories

What debt recovery means

Debt recovery means to take back control of your financial future without getting any (or more) black marks on your credit rating. It can involve getting your creditors to accept a reduced payment or even to erase the amount you owe depending on your circumstances entirely.

If you’re struggling with loan or credit repayments, it’s crucial to begin your road to recovery as soon as possible. A high level of debt can affect both your physical and mental health if you don’t take steps to manage it effectively. It can quickly spiral out of control.

The difference between debt collection and debt recovery

If you have fallen behind in your loan or credit repayments, you may have reached the stage where you are getting harassing correspondence, phone calls and/or visits from debt collectors (or collection agencies). They may be acting on behalf of your lenders/credit providers, or they may have bought your debt.

How does debt recovery work?

Debt recovery begins with understanding the system and your legal rights. It’s worthwhile to seek professional advice to help you start your debt recovery journey.

The debt recovery system – knowing your legal rights

Australia has a system that can help you to get out of financial trouble, provided you know your rights. If you’re struggling to repay your loans or credit, you have legal protection against certain lending practices. This protection is contained in Australia’s National Credit Code and the Debt Collection Guidelines for Collectors and Creditors.

Responsible Lending

The National Credit Code protects borrowers from irresponsible lending, so you may have some legal protection if this has occurred in your case. The Code contains responsible lending provisions that all financial institutions operating in Australia must abide by. This means that they must do all of the following before providing you with a loan or credit:

  • make enquiries about your financial situation
  • verify your financial condition
  • assess that a loan or credit is not unsuitable for your financial situation.

Financial hardship

If you’re experiencing financial hardship, the National Credit Code also contains provisions that allow you to request a hardship variation to your loan or credit contract. For example, you can request an adjustment to your repayments, so they are more affordable. A lender has 21 days to respond to your request. If your creditor disagrees with your proposal, you can complain to the Australian Financial Complaints Authority (ACFA).

The National Credit Code also contains a provision that restricts the assets that lenders can request as collateral for secured loans, as well as one that prohibits unfair contract terms from being imposed by credit providers.

Debt collection guidelines

Debt collection in Australia is legal; however, debt collectors or agencies cannot harass or bully you for overdue payments. There are legal guidelines that they must follow. These guidelines have been jointly prepared by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC). They include the following restrictions on when, how often and how you can be contacted about your overdue debt:

  • You can only be contacted a maximum of 3 times per week (and ten times per month) by phone on weekdays between 7.30 am and 9 pm (and on weekends between 9 am and 9 pm). You cannot be contacted at all by phone at any other times or on public holidays.
  • You can only be contacted in person if you haven’t responded to all other contact methods. This contact can only occur between 9 am and 9 pm.
  • Debt collectors cannot trespass on your property or use abusive language towards you. They also cannot discuss your debt with anyone else without your permission.

Debt collectors face significant penalties if they breach these guidelines. You can complain to ACFA if you believe a debt collector or agency is acting unlawfully towards you.

COVID-19 updates to Australia’s debt collection guidelines

Australia’s debt collection guidelines have recently been updated for COVID-19 to provide further protection to borrowers. At this stage, the following temporary guidelines will be in place until at least 25 September 2020. However, they may be extended depending on how the COVID-19 situation evolves in Australia.

  • You currently have a reprieve period whereby a creditor (or creditors) cannot attempt to bankrupt you for a period of 6 months from the date of issue of a Bankruptcy Notice – that is, you have a 6 month period to work something out with the creditor/s. Before COVID-19, you only had 21 days in which to comply with , set aside or otherwise make an arrangement in relation to a Bankruptcy Notice.
  • A creditor (or creditors) can only apply for a Bankruptcy Notice against you if your debt exceeds $20,000 (previously this minimum amount was only $5,000).

Loan repayment deferrals due to COVID-19

In addition to the above laws, the Australian Banking Association has introduced a range of measures to help Australian borrowers with their loan repayments due to the impact of the COVID-19 pandemic. Those measures include:

  • six-month loan repayment deferrals (with the possibility of extensions depending on your individual circumstances)
  • Debt refinancing or consolidation opportunities (i.e. converting high-interest loans or credit to lower interest alternatives if possible)
  • Converting loans or credit to interest-only repayments for a period of time to lower repayments.

State Debt Recovery

State debt is any money you owe your state government, For example, unpaid government fines or fees. Each State and Territory government has its own debt recovery office. These offices are effectively government debt collection agencies, and they must also abide by Australia’s debt collection guidelines.

If you’re struggling to repay any government debt, you may be able to arrange a payment plan or to have the amount you owe reduced due to financial hardship. You should contact the relevant government agency to discuss your situation.

Debt Recovery Services

Debt recovery services can relieve you from the stress of having to deal with your creditors or debt collectors. You can appoint a specialist to be your authorised representative and sole point of contact about all your debts.

A reputable debt recovery service like the one our team of specialists provides at DG Institute, can advise you on a range of debt recovery strategies. They can also help you to implement a debt recovery plan that is appropriate for your individual circumstances.

Debt Recovery Strategies

  • Negotiating with lenders

It’s in a lender’s best interests to get you to repay as much of what you owe as possible, without spending time or money chasing you. They may be willing to negotiate to settle part of the amount you owe or to reduce it.

In these challenging economic times, lenders would rather you repay at least some of your outstanding balance rather than none at all. The bad debt provisions of Australia’s financial institutions are on the rise, so they are likely to be more willing to negotiate. Having a skilled debt recovery negotiator working on your behalf is important. There’s an old saying that ‘you don’t get what you deserve in life, you get what you negotiate’. Our team of debt recovery specialists negotiates with lenders for a living. They will work on your behalf to get the best possible outcome.

You can also negotiate to vary your loan terms to try and make your repayments more comfortable to manage, for example, by extending your loan term or freezing your repayments for a set period.

  • Refinancing debt

If you have high-interest debt (like credit cards or personal loans) and you have equity in your home, you can refinance some (or potentially all) of the amount you owe into your lower-interest home loan. This can result in significantly lower repayments. It’s important to understand that interest rates on credit cards can be three or four times higher than home loan interest rates, while the rates on unsecured personal loans can also be much higher.

  • Making a complaint to ACFA

If negotiating with your lender and/or refinancing your debt aren’t the best or even viable options for you, you (or your debt recovery specialist) can make a formal complaint to ACFA. They will investigate your complaint and attempt to negotiate a fair outcome for both you and your lender.

What Is A Debt Recovery Plan?

A debt recovery plan is a personalised plan based on negotiated agreements with your creditors and on your individual financial situation. Ideally, it should be prepared by a debt recovery specialist. This plan should help you to get out of debt as soon as possible without any penalties, and back to growing your wealth again.

Good Debt Vs Bad Debt With Dominique Grubisa - DG Institute

Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practicing lawyer with over 25 years experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author.

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.

About DG Institute

Founded in 2009, DG Institute strives to empower everyday Australians to grow and protect their wealth. Our goal is to provide direction, motivation and inspiration to our clients and help them perform at their very best. We do that through our professional services, in addition to teaching them how to grow their wealth through property and business education.

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.

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