Published 2:39 am 31 Aug 2020
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.
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:
- what debt recovery means, the difference between debt collection and debt recovery
- how debt recovery works
- the debt recovery system – knowing your legal rights
- State debt recovery
- beginning your debt recovery process
- 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.
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.
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.
Debt Recovery Case Studies And Success Stories
At DG Institute, our team of debt specialists will be able to guide you through the debt recovery process. You can read about some of our clients’ success stories below.
John and Barbara – negotiating with an irresponsible lender
John was nearing retirement and wanting to buy a retirement home for he and his wife, Barbara. A mortgage broker arranged finance with a bank, and they ‘fudged’ the numbers to satisfy responsible lending provisions. Within just three months, John and Barbara realised that they couldn’t afford their loan repayments. Even if they got a tenant into their new property, their repayments were simply unaffordable. John and Barbara had become victims of irresponsible bank lending. Their loan should never have been approved because they didn’t have enough income to afford their repayments.
John contacted our specialists at the DG Institute and told us about his situation. We went into bat for him. Even though his lender wanted to pursue a costly court case to resolve the problem, we were able to reach a settlement to enable John and Barbara to get out of their loan and once again become debt-free.
Peter – negotiating with a lender and implementing a debt recovery plan
Peter owed $3 million and was being hounded by ten mortgage lenders and 16 credit providers when he contacted us for help. He had a repayment shortfall of over $20,000 a month and was fighting for his financial life.
We assessed Peter’s situation and ultimately Peter was able to reduce his repayments to just over $600 per month.
Jackie – exposing an irresponsible lender and reducing a $70,000 debt down to $4,000
Jackie owed $70,000 on two separate credit cards. One that she’d racked up $49,000 on should never have been provided to her in the first place had the credit provider followed responsible lending guidelines. We complained to ACFA on her behalf and had her entire $49,000 outstanding balance erased! We also negotiated with her other card provider to reduce the amount Jackie owed from $21,000 down to $4,000.
Jackie is now building her wealth rather than drowning in debt.
If You’re in Debt
Being in debt places you into a precarious financial situation which can quickly snowball into a catastrophe.
One of the clients at DGI Debt Management was a business owner and the primary provider for his family, when the pandemic hit and dramatically reduced his income. In order to continue paying his bills and putting food on the table, he began to take on more debt than he could afford and quickly found himself with $20,642 in debt.
The Debt Management team was able to reduce his debt down to just $3,759, cutting 82% of his total debt off and giving him the breathing room he needed to get back on his feet.
On top of that, he no longer had to worry about the possibility of bankruptcy, or having to deal with creditors anymore.
To find out if the Debt Management team can improve your debt situation, visit DGI Debt Management today.
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