How to get out of debt for cents on the dollar | Ask Dominique | Nov 2018

Dominique Grubisa
Dominique Grubisa

Published 10:36 am 1 Feb 2021

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Hi, and welcome to our Ask Dominique Facebook Live session for the month of November, end of the month now. And I was overwhelmed with feedback from our last Facebook Live for our Ask Dominique. When I talked about debt and the wave of debt, and what I’ve decided to focus on this month is strategies to be able to deal with debt, because as you know, that’s my background and I helped myself out of debt. And it’s a very funny little system, but with massive, massive opportunity. As I told you last time, there’s a big, wide world between going bankrupt and being insolvent and breaching a contract where you don’t pay your debt or honor that contract. There’s a lot that can be done in between, and no-one really shares that middle ground with you.

So, as I explained last time, there is a rising tide of debt right now in Australia, and what we’ve got is what I call a perfect storm. Because of what’s happening with the Royal Commission and everything else that’s going on, lenders are really, really negotiable and motivated if you know the system. So that’s what I was sharing last time that everyone contacted us offline with their own personal questions. And as I promised and committed to on our last Facebook Live, I’m actually going to be able to answer questions live today. I won’t be able to get to everyone, but as you post, I will see what’s relevant to what we’re talking about. We’ll come back to you with the rest later, but I’ll be able to assist you and get to things that are relevant. For example, last time someone asks, “Well, what’s the difference between AFCA the new Australian Financial Complaints, Authority and FOS the old Financial Ombudsman System?” No real difference, just bigger and better and combined process, but the same rules, principles, the same laws apply as before. So a lot of middle ground and ASCA is what facilitates a lot of that.

So for those of you who weren’t with us last time, what I talked about was this new complaints or authority. So we’ve always had what they called external dispute resolution, because the government knows that banks and lenders are really, really big, and when you’re in debt or you’re just a little one person against the system of banking and finance, it’s really, really hard because they’ve got deep pockets, unlimited resources, and to take them through courts or any other mechanism to defend your rights is going to cost you time and money, and they’ll always win with their expertise and their know-how. However, what they did was set up this ombudsman service, so to get a credit license before the government let you lend money, you had to be a member of a dispute resolution scheme. And what it means is, if there’s any dispute then AFCA, which is now the single body, it used to be two; the Credit and Insurance ombudsman, as well as the Financial Ombudsman, so they’ve both been melded into one now, and so it’s one central body. And what it means is that it’s free for you. There’s no lawyers. It’s just a way to get someone to talk to you and to negotiate with you.

And within a bank, they have trained experts who will call you about your complaint straight away. So you’re not getting the run around from department to department. They have power to make judgements and awards, which are binding, so they can write hundreds and thousands of dollars off mortgages, and the bank can’t appeal that to any court. Plus it’s free to use. Decisions are binding on the lender, and not on the borrower. So a really, really powerful tool for you that can do some wonderful things. And if you read the email with invitation to this session, we talked about some of the case studies of our clients, and one of them with $70,000 worth of credit card debt was reduced to $3,900. And that was using that tool of AFCA, and negotiating a solution there.

So let me run through a couple of high level things. And this isn’t just if you’re drowning in debt, you don’t have to be distressed or insolvent, it’s just dealing with your nuisance debt. We all carry debt, and we shouldn’t carry the amount that we do it. We should all be debt-free really, and the debt we use should be good debt to take us further, faster, instead of car loans, credit cards paying too much on our mortgage, what I call the, “Debt anchor,” nuisance debt that just holds us back. Our sole role in driving ourselves forward should be to focus on the future opportunities. If we’re distracted and we have a split focus, dealing with debt and being unsure about things, then it tends to hold us back with fear and uncertainty. So understanding and having knowledge around your rights and what you can and can’t do, and what’s possible will be incredibly empowering. And that’s what I want to talk about in this session today.

So there is a banking code of practice. So lenders opt-in to that because they don’t want governments interfering like what’s happening now with the Royal Commission, they’ve voluntarily set up their own code of practice. And what that says is that, “What we say goes,” in other words, “We will set up our own code of practice, our own like a governing body, we’ll self-regulate. We don’t need to go public and have laws made to control us; we opt-in to our own laws.” So they’ve set up their own code of practice, which they’re voluntarily opted into. And that they’re bound by. There are hardship provisions in the banking code of practice that says, “Look, if you’re in hardship, if you’ve got debt, we’re going to work with you. We can figure it out, and we can vary your loans.”

The other thing that applies is the Credit Code. So the National Consumer Credit Code also has hardship provisions, where loans can be varied if there’s an issue with them. So if, for example, you can’t pay your loan, if it switches to principal and interest, they have the right and the discretion to make it interest only. It can be, for example, if you have missed a lot of repayments and you’re on penalties and charges and your loans escalated, they can reset it, take it back to a base rate or even a different rate, they can capitalize the interest and add it to the loan, and then you can resume making payments on that. They can give you a pause, a total freeze on your repayments for six months or so. So there’s a lot that they can do with debt.

And when I say debt, I mean, any debt credit card debt, unsecured debt, mortgage debt, car loan debt, business debt. It doesn’t matter. The hardship provisions apply for that. So even an investment property loan, even though that’s not technically household, mum and dad debt, it still comes under the provisions of the National Consumer Credit Code. The only thing that isn’t covered by the Credit Code would be, for example, if you’re running a company and it’s more sophisticated debt, like an overdraft account or that sort of thing, but I’m going to loop back to that because there’s other provisions that help protect you, if you’re a personal guarantor of a business debt. So your family home, that sort of thing.

So they can offer variations on all non business loans. And if none of that works, you can go to AFCA to level the playing field. So you can lodge a complaint online, it only takes less than five minutes, and what that actually says is, it asks the lender to work with you in hardship, AFCA automatically then give you a claim number. That happens instantly, and then it freezes everything. So what it means is the lender can’t blacklist you. They can’t say, “Oh, well, you missed a payment, we’re going to hit your credit score, and make things hard for you if you go for a loan in the future. Once you’ve lodged an online complaint, everything stops and you’re in the driver’s seat. The lender is going to ring you then, and they’re going to start asking questions and see how they can help you.

They have a special trained department with counselors and everything. When I say counselors, they’re not emotional counselors, but financial counselors who could talk to you, and help you through your problems, and settle your complaint or your claim. And it relates to all credits. So any lending, any financing, that sort of thing, apart from business, and so of a consumer nature. And they have the power in AFCA, to award damages. So we’ve had clients get hundreds of thousands of dollars wiped off mortgages. And I’ll talk about that in a moment.

Maladministration is a topic that’s really, really hot in the press now, because of the Banking Royal Commission. So maladministration means lending that should not have taken place. So they’re really under the microscope with that in the banking and finance space. If it’s the case that a borrower can’t afford the loan and the lender should’ve known that and any reasonable background search or due diligence would have revealed that they’re getting in over their head, then the duty is on the lender to foresee that, and not advance the money. So it’s a new era of what they call responsible lending.

So part of the Royal Commission, a few months back, they looked at fraudulent loans, loans that were put through so that brokers could massage it into place and take a commission. And everyone would get rich and banks could write more or less, when they knew or reasonably ought to have known that they were getting the borrower in deep, over their heads. So think of it a bit like, you know how they have responsible gambling and things like that, and responsible service of alcohol; if someone’s drunk, you can’t keep feeding them drinks to make money, if you’re a hotel or a bar. And similarly, the [inaudible] can’t keep taking bets from someone who is a known gambler on their watch list. The same concept in principle applies with lending now; they can’t lend money if they knew, or should have known that the person was addicted to debt and couldn’t afford it, they were painting themselves in a corner. So they have a responsibility to know their customer and to research it all before they advance funds.

And they’re looking at that in the Royal Commission now, but Commissioner Hayne came out with his interim report this year, and what he said was in September, “Hey, these laws have already been here. They’ve been here forever. They shouldn’t lend to people who can’t afford it, and they’ve done that.” So basically what the law says is that if banks have done that, then you have a legal right to have that loan investigated and get money back. And we’ve done that for many clients been able to write off a loan. So irresponsible lending is the first thing there.

There’s some leading cases, as I said, these have been around forever. And that’s one of those cases is one called [inaudible 00:12:44], that was the first case, and the other one is O’Donald. So these have been around pre-global financial crisis. But high-level view of the case law, what the courts have said, and this is on an appeal level is, if a broker or a lender knew or could see from a loan application form that one and one don’t make two, then they shouldn’t have lent the money. So it puts the onus back onto the lender. What it says is it’s an unfair or unjust contract, and there’s legislation around that. For example, in New South Wales, there’s the Contracts Review Act; you don’t need a statute, contract law is throughout the ages. It’s evolved through the common law that’s case law. But what it says, if one party is more powerful, like a lender, basically the more powerful party in a contract, if they’ve abused the relationship, or they’ve used their power, so that it’s unfair or unjust for the other party, the courts can undo that, or reset it, or put the weaker party in the position they would have been in, but for that contract being entered into.

So that’s where we’ve seen, if someone had a $200,000 loan and the bank irresponsibly lent them $500,000, even if that extra $300,000 is already being spent in a mining town or a dodgy investment or whatever, the loan can be reset, and the court can order and FOS or the AFCA, the Australian Financial Complaints Authority, as of this month, can order that $300,000 to be written off. So the loan sits at $200,000, what it was before the person entered into that irresponsible loan. So really, really powerful tools there to massively reduce debt.

Now it’ll depend on the situation that you’re in and the facts, matters and circumstances, but what ADCA will look at is, has there been unconscionable conduct? In other words, has the bank really abused the relationship, and have they acted in a way that’s put you in a bad position through an unfair contract? Beauty with AFCA is, there’s no lawyers, there’s no court costs; it’s an online form, it’s free for you, and there’s a real opportunity to renegotiate, and deal with your lender. So it puts you in the position as if you had not entered into that contract. And there’s a whole raft of powers that AFCA have to reframe your loan, so reset the whole thing and make orders that are binding on the bank. So they can’t say, “Oh, I don’t like that,” or run off to court. It is what it is.

We talked a bit in the last webinar, we had lots of questions about the secondary debt market. So I’ll just explain that quickly, basically lenders are in the business of lending money and earning interest. So if you have a loan, their sole purpose is to have you making repayments. If you miss a repayment, then what that means is the loan is non-performing for them. They’re going to chase it for a bit and try and get you back on track, but after three months, they have to declare that as delinquent debt. And that’s no good for them, they don’t like that because it hurts their credit rating as a lender, and it means more money in reserves to cover bad debt. So what they want to do is get bad debt off their books. First port of call is to get you paying again, but if you can’t or won’t, it’s not in their interest, it’s not their core business to be in debt collection.

So what they’ll do is often they’ll bundle up a whole lot of debt and they’ll sell it to someone else for cents on the dollar. So companies you may have heard of like Baycorp, Credit Corp will buy books of debt. So they’ll buy $100 million worth of debt and they may pay $10 million for it, and then anything they collect over and above the 10 million, that’s their profit. It means for the bank that they can get that bad debt off their books, it doesn’t affect their credit rating, and they don’t have to put funds in reserves. They can just keep on lending money. Yep they cop a loss, but they claim it on their tax, and that’s just how they do business.

What it means for you then, the knowledge that that’s how the system works means that banks will write off your debt for cents on the dollar. And rather than them having to sell it to Credit Corp, bundled up with a bunch of debt, you can negotiate directly with them to pay it off for cents on the dollar. So, if you’re being chased by a secondary debt buyer, so Baycorp, Credit Corp, if someone’s bought that debt from you, what that then means is that you may have a case to argue against them and really negotiate it down, because you know, they’ve only paid 5 cents on the dollar or whatever for that, so anything they get off you as a profit. So they’d want something.

Now their port of call is going to be saying, “Pay this off. Let’s get you on a payment plan,” that sort of thing, what you can say to them is instead of saying, “Oh, look, I’ve got $5,000, let me pay it to you.” They’re going to say, “That’s okay. Just pay us this much now, pay it off over time, or give us the 5,000 and then give us the rest later.” So what you’re going to want to do from a negotiation point of view is say to them, “I might be able to get money. I’m flat broke. I’m a man of straw. I’m worth nothing. And in fact, I’m even looking at going bankrupt because I don’t know what to do, I’m insolvent, but I may be able to pass the hat round to friends and family. If I can raise $3,000, will you take that in full and final settlement of everything?”

If they’re really pushing you and for some clients it’s escalated, they’ve even sued you in court or they’re writing letters of demand, they’re ringing you up. First thing you need to know is, there’s rules around debt collection, so they can’t be harassing or hassling you in that way. If they are, you have rights and [inaudible] governs that; you can make a complaint. But one thing that you may want to do, if it’s really making you lose sleep and you don’t know which way to turn, you can nominate somebody else to be the contact person. Once you do that, they’re not allowed to legally contact you at all. They can’t call you, they can’t write to you, they have to go through whoever you nominate and it can be anyone over 18 years.

If you’re dealing with them directly, ask for the paperwork, because often the banks, when they sell off this debt, it’s too expensive and time consuming for them to put together every single document. It’s just not their core business. The amount of work and data entry that would go into preparing a loan book for sale, just wouldn’t warrant it for the amount they get paid. So often they’ll just say, “Here’s their names and numbers, here’s a bit of detail around it, and we’ll give you contact details and nothing more.” By law, they’re going to have a real lot of trouble enforcing that debt, if they don’t have copies of the loan agreement and all the details around your business with them. So, if you’re able to, push them back and say, “No, I don’t know what you’re talking about. I don’t have a loan, let me see this. Let me see that. Let me see the loan contract.” It’s your legal right to ask for that. It puts the onus back on them. And then when the debt collectors are ringing, you’ll say, “No, no, no, by law, I’m not talking to you. I’m disputing this debt. And I’m waiting for you to produce your paperwork. Ball’s in your court.”

Ask for where they assign the debt. So you have an agreement with the lender when you borrowed money, they have sold off that debt. Now that’s allowed if I have a contractual right, I can sell that to someone else. It’s something of value, so I assign that debt. Assigning debt to someone else means that they now stand in my shoes for the contract. However, part of the law, and it’s under the Conveyancing Act or various acts in different States, but part of the law is if you are taking ownership of debt and it’s assigned to you via a contract, a notice has to go to the borrower; they have to now know that Baycorp owns that debt and has the legal right to chase you. If they don’t do that, then they can’t chase you. So that’s another point to raise. I’ve never been told of this. They often don’t do it. They just don’t bother, they don’t care, or the last address they’ve got is the wrong address, they send something there. So you’re well within your legal rights to say, “I need to see the notice of assignment where you told me. I don’t know you from Adam, and who am I to believe that I owe you money. I only had an agreement with the Commonwealth Bank or whatever.” Don’t even say that don’t give them anything; the onus is on them to prove their case and to chase you.

Seek a payment record, dispute the payments because there’s a little known thing called the Statute of Limitations, and what that says is, if it’s been six years since you last made a payment, then they have no legal right at all to sue you, or pursue you, or claim against you at all. After six years of non-payment, the clock resets and the debts written off anyway. So make sure you keep your own records, but if they’re pursuing you, sometimes they’ll get really, really old debt close to the end of the six years, the bank will sell that off so cheaply, and sometimes I’ll leave them by debt past the six years, in the hope that they can trick someone, so know your rights around that.

If you’ve given a personal guarantee for a business, which a lot of how clients have done. That can often backfire. And we’re seeing that a lot more now, as I said, with the perfect storm, the rising tide of debt, but there’s certain rights around that as well, so you want to look at your situation. Chances are you probably, if you’re running a business or borrowing in a company, you wouldn’t have been able to borrow money without personally signing a guarantee. What that means is your own personal assets are now on the line for the business or company debt. So if anything goes wrong and we’ve got a lot of clients, for example, with mining town debt, they’ve bought in a company or a trust, but to borrow the money, they gave a personal guarantee. And it means now that the lender is chasing their family home or their other personal assets. So what we want to do there is push back to get leverage. AFCA’s great for this; you logged your claim, freezes everything, can’t blacklist you, can’t chase you, they’re not even allowed to call you, all debt collection stops. And from there on in, what happens is that you deal with the in-house complaints team in the bank.

If you can’t come to a resolution with them, then it gets like a mediation, a conciliation, a little mini hearing on the phone with an AFCA member and the other side, the lender and you. And what that means then is you can backwards and forwards, and most of them settle, you come to some solution. So first thing to ask a point of leverage to argue is, was the guarantee contemporaneous with the loan? In other words, did they happen at the same time? The same time that you were offered the loan, did they then say, “Yep, in order to get the money, you have to sign this guarantee” sometimes they give you the loan and they decide afterwards, you know what? This is a little bit scary and dodgy markets for them, and business is not up to scratch. Their overdraft is getting close to the limit, let’s go and ask them for a personal guarantee to make things right.

If they’re not done at the same time, if they’ve asked for it later, after they’ve given you the money, they’re putting you under duress. So that’s unconscionable, they’re basically said, and there’s a lot of case law around this, it’s unfair, it can be set aside as an unfair contract to say to you after you’ve got the money after you’re in debt, “Oh, by the way, give us a personal guarantee.” Has to be given as consideration at the time that you got the loan, not after the fact.

Is there a situation where the person guaranteeing the loan got no actual benefit from the loan? So there’s lots of cases of the wife signing a personal guarantee for the husband’s business and losing the family home that’s in her name, when she had no say in the business, no knowledge of the business. There’s heaps of cases, where people’s parents have put up their home as guarantor for the business, all of that as well, is questionable. Especially if at the time of signing, that person didn’t get independent legal advice. Either way, whether they had an interest in getting the loan or no interest at all, they were just doing someone a favor, that can be set aside if they haven’t got independent legal advice, or if there was just no benefit to them. If you didn’t get independent legal advice at the time when you sign the personal guarantee, that is also grounds for argument.

So these are all things to be able to say to a lender, especially in AFCA, “Well, I could fight this all day long. I’m not giving in on this.” They’re going to take a reduction in that respect, just to get a bird in the hand, to get money. They can’t sell a debt off to a secondary debt buyer, Baycorp or Credit Corp while there’s an AFCA complaint on foot, and AFCA complaints stay on foot sometimes for 12 months or more. And they also, Credit Corp, Baycorp, any secondary debt provider is also a holder of a credit license, so they’re members of AFCA as well; any lender at all, anyone lending money has to belong to AFCA. And if they don’t and they’ve lent money, then that loan can be written off altogether. We’ve had cases of that where they didn’t have a credit license and we’re lending money, and that was a problem as well.

The last thing is, did you take extra draw down from that? So if you had the guarantee at a debt for $100,000, and then later on, they upped the ante to $300,000, case law is that you’re only bound by the amount that you had when you’re offered the guarantee, and not any increased security. So lots of room, and this is just tip of the iceberg higher level, giving you ideas of how to fight back by time, gain, leverage, and negotiate. They are so negotiable. I don’t know of a debt that can’t be negotiated down. Lenders do not want to fight with you, they do not want delinquent debt on their books, they don’t want non-payers, and they are highly motivated to take something and sort something out, it’s just that most people don’t know that. What they’ll tend to do is they’ll just put their head in the sand. Even when they go for expert help, they’re told, “Oh, well you either keep paying or else you better go bankrupt because you’re insolvent.”

So there’s a big middle ground in there. And because of the way the economy is because of the number of our clients who are coming to us organically, just in trouble as a go-to place, we’ve created a solution for those clients. So that is our Debt Rescue Solution, to empower people to take back control, either with nuisance debt, debt that’s higher than it should be, or debt you just want to get rid of and pay down, or negotiate away altogether.

And that’s what Debt Rescue’s about; because someone else is allowed to go on the record and deal with it for you, that’s what we offer. So we’ve got experienced debt counselors, I’ve been working on this for a long time, and I’ve trained up people with the knowledge that I have to be able, under my supervision, to negotiate your debts away for you, get you a solution and a resolution. And in the meantime, this can go away as quickly as tomorrow. In other words, if you focus on the future and let us as trained expert be the contact person, so we deal directly with the bank or the lender, they don’t call you anymore, and we go direct. We implement a strategy with you of what’s possible, we get an agreement and then we just handle it from there, and all you have to worry about is just moving forward with what you do best; creating your perfect world, your financial future.

If this is something for you, then I would urge you to book an appointment to talk to one of our debt counselors about your situation and what’s possible. To do that, you can go to this link. So If you go to that link, then you’ll be able to book an appointment, and we will call you and take the rest of it offline so you can know what’s possible for you. So the only caveat I have with that is, we have only been offering this organically, in other words, if people ran up with a problem. We’ve been offering them help; we haven’t actually taken this to the public yet. And we’ve got finite resources around that. It is a process that requires a lot of manual work, a lot of phone calls, a lot of negotiating, and we’ve got the resources to help 20 people right now. So if you’re one of those 20, go to that link, now, book an appointment and we’ll call you and see what can be done.

It’s not for everyone. It is, as I said, labor-intensive, but what we can do is tell you exactly what’s possible, what we can do. And you then can just write that off and focus on your future. Haven’t had any questions from you guys that are related to anything that we’ve been talking about here. I do encourage you to either send questions in an advance, or participate by typing questions online. I’m really wanting this to be far more interactive, so Josephine’s just said, “How much does this cost?” You know, I am not into time for money, especially in distress, you want to know A, there’s a solution, B that it’s been taken care of and see, you’re not going to get a big bill saying, “Oh, we spent 20 hours doing this at $500 an hour, there’s your bill.”

So we’ve capped it at a flat fee of $5,500 for your whole situation. And if you know what lawyers charge per hour with trading time for money and time costing, that is a commitment should get you a resolution within 12 months, and that’s no matter if it’s 500 hours or however big it gets; it’s capped at a flat fee. So what we do is we look at what your situation is, we then devise a plan as to what we can do, and then however long it takes however much it costs, we guarantee $5,500, and we’ll resolve it within a 12 month period, no further costs or charge to you. And I’m so confident in what I do, my money back guarantee is, if we don’t improve your position by more than the $5,500, then we’ll give you a full refund. I know that there’s far more debt out there than the $5,500, and I know I can make an impact and an exponential difference, and save you a lot more than what you’re paying us to be able to get that sort of resolved for you.

No more questions guys, so we might wrap that up. In future though, I’ve set myself up, there’s a lot of technology where I’m able to now answer your questions live and it’d be awesome, if we could get far more interactive about it, because I’m getting emails afterwards and I’m devising, and giving you content for what you’re asking for, but it would be far better if I could do that at the cutting edge, and know exactly what it is that you need at the time that you need it. So please get in a place where you can type and interact with me in future, and I’m all set up so that I can answer those on a live basis.

That’s it for now, let’s catch up next month on the next, Ask Dominique. And in the meantime, let’s see how much debt we can improve. The results that we have gotten for people have been above and beyond. As I said, $70,000 paid out, gone, no blacklisting on a credit score or anything, for $3,900. What could you do if you are able to unshackle yourself from that debt anchor? How high could you go? So book an appointment there, we’ll take it offline, love to help you, and let’s catch up next month.