What happens if I can’t pay?

There are various options to deal with financial incapacity:

  1. It is always recommended to communicate with the creditor (or their agent) as soon as possible to avoid additional costs, where applicable.  Not only will this help prevent further charges as a result of non-payment, but, depending on the type of debt and circumstances involved, the creditor may be obligated, and willing, to enter into a more flexible repayment arrangement.
  2. You may seek assistance from a financial counsellor by contacting the National Debt Helpline on 1800 007 007 or by visiting www.ndh.org.au .
  3. If your financial position is exceedingly dire, you may want to consider entering into bankruptcy.  Follow the link for more information. I can’t pay my debts | Australian Financial Security Authority (afsa.gov.au)

Can legal action be taken against me?

In most circumstances, a creditor has a right to undertake legal action to recover unpaid debts.  

However, court proceedings incur significant costs to both the creditor and debtor so is often used as a last resort to obtain repayment, especially where a debtor shows a willingness to make repayments.

The National Credit Code operates to protect credit consumers and provides a framework for creditors to follow when enforcing credit contracts.  For example, a creditor may not threaten legal action if there is no genuine intent to do so.  Therefore, the correspondence you receive should indicate whether there is an intention to take such action. 

Can my perceived credit worthiness be affected?

A creditor may only report a failure to pay (default) with a credit reporting body in accordance with the National Credit Code and the Privacy Act 1988.  If such a report is made, your credit worthiness will be affected which would result in a rejection of any further credit applications.

A default may only be reported to a credit reporting body in the following circumstances:

  1. The payment has been overdue for at least 60 days and is equal to, or more than, $150. 
  2. You received a default notice meeting setting out all details about the debt and how it may be repaid, including a time-frame of at least 30 days to pay.
  3. You receive a further notice at least 14 days later to let you know that if payment isn’t made the credit provider intends to disclose the information to a credit reporting body. 

What if my details have been used to open a fraudulent account?

Most significant credit providing organisations will have a dedicated process for dealing with such issues.  You should contact the creditor (or their agent) as soon as you become aware of any suspected fraudulent activity occurring in your name.  You may be required to submit a statutory declaration and complete and provide evidence of a police report detailing the crime.  

You should also check your credit report for any other suspicious activities.  If there are suspicious credit activities listed, you should consider placing a ban period on your credit report so no new debts can be added to your name. 

I was not aware of the debt so am I still subject to consequences of non-payment?

There is an expectation that you are aware of your financial commitments.  Therefore, consequences of non-payment would remain valid.

Has the debt increased?

Additional charges are common and the contract’s terms and conditions will detail liability and will often include an indemnity clause which requires you to indemnify (repay) the creditor for costs incurred attempting to recover unpaid money.  

Interest, or other ongoing charges, may also form part of the agreement and may continue to accrue until the debt is finalised.