Chapter 3: Debt collection

3.1 Debt collection 

Creditors often take the following steps to collect unpaid debt: 

  1. request for payment 
  2. letter of demand 
  3. statement of claim filed in court 
  4. application for default judgment (no defence filed) or court hearing (defence filed) 
  5. judgment debt confirmed by court 
  6. enforcement of judgment debt via court enforcement mechanisms (including examination summons, garnishee order, writ of execution, bankruptcy). 

Debtors should understand how to deal with creditors at each step of the debt collection process. If you acknowledge a debt and can pay, then payment will swiftly resolve things. If you don’t acknowledge the debt or are unable to pay right away, there are still options available to you. 

You’ll usually know the creditor, but sometimes an unknown party (such as a debt collector) may contact you about a debt. Debt collectors can work for a creditor, as agents, or may have ‘purchased’ your debt from the creditor (this is called assignment). Mistakes happen, so the first thing to check is that you owe the money. You should get as much information as you can from the debt collector and check your records before you agree to pay anything. 

If you’re unsure about the debt, write to the debt collector, asking for further information (see 17.3 Request for further and better particulars in Chapter 17 Sample letters and templates). 

Be cooperative when debt collectors contact you and, in return, they should treat you professionally. If you are concerned about a debt collector’s conduct, there are various mechanisms for making a complaint. 

This chapter explores standard debt collection practices in NSW and how to respond. 

3.2 Letters of demand 

If you haven’t paid your debt on time, you may receive a ‘letter of demand’. A letter of demand is not a court document or order; it’s just a letter reminding you of the amount owed, the time frame for payment, and consequences of non-payment (such as court action and additional fees). 

National credit laws provide special rights and protections for consumers of credit products (like personal loans, credit cards, mortgages). See Chapter 6 for further information if your debt is related to consumer credit. 

3.3 Responding to a letter of demand 

If you are unsure whether you owe the debt, or what the letter of demand is all about, DO NOT make any admissions before seeking legal advice. If you acknowledge that you owe the debt without being sure that you do, the six-year limitation period for commencing court action will re-commence, and the creditor has more time to enforce the debt against you. If in doubt, get legal advice or see a financial counsellor immediately. 

If you receive a letter of demand, your options are: 

  1. ignoring the notice 
  2. payment in full 
  3. negotiating with the creditor 
  4. refusal to pay. 

Don’t ignore it 

You can choose to ignore a letter of demand, but it’s not a good idea. You should respond to the creditor promptly, even if it’s only to say that you are seeking advice. You might also want further information from the creditor about the debt. In these cases, you should write a letter to the creditor asking for more details, date it and keep a copy. Chapter 17 contains a sample ‘Response to letter of demand’ and a ‘Request for further and better particulars’. 

Having an open line of communication with the creditor, or debt collector, will make it easier to negotiate a solution without the case going to court. 

If you ignore debt problems, they are likely to get worse — you may incur additional fees, and secured items may be repossessed and sold. If the creditor has to take you to court, you may have to pay unnecessary legal fees, and judgment debts will be recorded in your credit history. 

If you’re experiencing severe financial hardship, you may consider writing to the creditor or debt collector to let them know that you’re struggling and cannot pay. Chapter 17 contains sample letters to creditors regarding ‘financial hardship’. 

Payment in full 

If you agree you owe the full amount claimed, and you have sufficient money to repay the debt in full, it is best to do so to prevent further enforcement action and cost. 

If you agree that you owe part of the amount claimed, you may choose to send payment of that part amount to the creditor, with a written explanation about why you dispute the balance. Part-payment can sometimes act to ‘lower the odds’ of further adverse action, as the creditor might decide that it is not worth the trouble to pursue the balance. It also shows good faith on your part. 

Negotiating with the creditor 

If you agree that you owe money to the creditor, but can’t pay all at once, there are various options you can consider. Be sure to document any agreements reached with the creditor, and don’t accept a verbal agreement (see sample deed of settlement in Chapter 17). 

Extension to pay 

You can ask the creditor to give you an extension of time to pay the debt — for example, until your next payday, or until you get your tax return. 

If you owe money because of a loan or mortgage from a credit provider, you can apply to have the lending contract varied if you are experiencing financial hardship. For example, you could seek to have the contract extended, or repayments reduced until your financial position improves (see Chapter 6 for further information about consumer credit matters). 

Instalment plan 

You can offer to pay the debt by instalments; however, you should make sure that your proposal covers more than just the interest on the debt (otherwise you’ll never pay it off). Your instalment proposal should be reasonable, considering the amount and nature of the debt and your particular financial circumstances. If the creditor agrees to your proposal, be sure to put it in writing. If you don’t comply with the instalment agreement, the creditor can still commence court proceedings against you, so it’s crucial to notify them of any changes to your circumstances as soon as possible. See sample letter confirming repayment arrangement in Chapter 17

Reduced amount 

You may offer the creditor a reduced amount in satisfaction of the debt. Sometimes creditors are happy to cut their losses and get a lesser payment now, rather than chasing you for the entire amount. 

Put your offer in writing and make sure that you write ‘WITHOUT PREJUDICE’ at the top of the letter. Without prejudice means that your offer cannot be held against you as an admission of liability if the matter goes to court. See sample offer of settlement in Chapter 17

If you make an offer of a reduced amount that the creditor accepts, you should confirm it in writing. Do not merely accept a verbal agreement. Ideally, you should both sign a ‘deed of settlement/agreement’, which releases you from further responsibility for the debt. If the creditor prepares a deed of settlement, be sure to read it carefully and seek advice on any terms that you don’t understand. See sample deed of settlement in Chapter 17

Write off 

In some cases, you may ask the creditor to write off or wipe the debt, for example, when: 

  • you cannot repay the debt and your circumstances are unlikely to change (for example, you have a terminal illness and there are no assets of value in your estate) 
  • there were unusual reasons that caused you to incur the debt 
  • you believe the creditor was partly responsible for allowing you to incur the debt (for example, the creditor sold you goods when they reasonably should have known that you were suffering a manic phase of a mental illness). 

See sample letter requesting debt release/write off in Chapter 17

Refusal to pay 

If you dispute the debt, you can refuse to pay, for example, when: 

  • you have already settled the debt 
  • there is mistaken identity or fraud 
  • the limitation period for collecting the debt has expired 
  • you signed the contract, but were misinformed about what it meant 
  • you didn’t get what you paid for, or it was faulty, or 
  • you were not at fault, or you were both at fault (if the matter relates to an accident). 

If you think any of these circumstances apply, remember DO NOT acknowledge the debt before obtaining legal advice. If you need further information about the debt, then ask the debt collector to provide details about what they say you owe and why you owe it. 

The debt is already settled 

If you believe you have already paid or settled the debt, then you should contact the debt collector and explain the situation to them. Ideally, you should provide them with documentary evidence confirming payment or settlement. It is best if your correspondence is in writing and dated. 

Mistaken identity or fraud 

In cases of mistaken identity, showing proof of your identity might be enough to resolve the situation. If you think someone has been using your details to run up debt in your name, contact the service provider immediately. You might also consider reporting it to the police, in the case of identity fraud. 

Old debts 

Debt collectors have six years to recover debts (there are some exceptions, like debts to Centrelink, and child support). If it has been more than six years since you made a payment or acknowledged the debt (and presuming there is no court order against you), then you have a complete legal defence against the claim in court. These are called ‘statute-barred debts’. If debt collectors contact you about a debt that is more than six years old, DO NOT make a payment or acknowledge the debt. Instead, seek immediate legal advice about your options for defending the claim. If the debt collector continues to harass you, consider making a formal complaint. See sample letter to debt collector (old debts) and sample letter to debt collector (alleging harassment) in Chapter 17. 

Disputing the debt 

You can take the following steps if you think you have other good reasons for not paying: 

  • contact the creditor and explain why you dispute the debt 
  • consider using an external dispute resolution scheme (if applicable) 
  • get free legal advice. 

Alternative means of resolving disputes 

Court action is not the only way to resolve debt-related disputes. Depending on your debt type, there may be free (or low fee) options for dispute resolution, for example: 

  • If you think your energy provider has overcharged you, and they won’t correct the matter, you can make a complaint to the Energy and Water Ombudsman NSW (EWON). 
  • If the fridge you purchased on credit is faulty, and the retailer won’t fix or replace it, you can lodge a consumer claim with the NSW Civil and Administrative Tribunal (NCAT). 
  • If you believe a solicitor has overcharged you, you can make a costs complaint to the Office of the Legal Services Commissioner (OLSC). 


Mediation is a useful first step in dispute resolution. You can access FREE mediation services at community justice centres (CJCs), located across NSW. Mediation is a voluntary and confidential process where a neutral third party (the mediator), helps parties to: 

  1. identify issues in dispute 
  2. discuss their respective views on each issue 
  3. generate possible options for resolution 
  4. come to agreements about realistic solutions. 

 While mediators do not give advice or make decisions for you, they can help you have a structured discussion with the other party and find workable solutions. You can contact your local community justice centre to arrange a mediation. See Contacts

3.4 Debt collectors 

Types of debt collectors 

A debt collector is a person who collects debts in the course of business. Debt collectors may work within a broader organisation or in a dedicated debt collection agency. It might also be a debt collection agency (assignee) that has ‘purchased’ your debt from the original creditor and becomes your new creditor. 

What they can do 

Debt collectors must follow specific rules — so, as a consumer, you have various legal protections when dealing with them. The Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) are the leading government authorities that enforce laws relevant to debt collection. 

For example, debt collectors are not allowed to act in a way that is misleading or deceptive, or unduly harass or intimidate you into paying. A debt collector should only contact you when it is necessary to do so, and when the contact is for a ‘reasonable’ purpose. ‘Reasonable’ purposes might include: 

  • making a demand for payment 
  • arranging repayment 
  • finding out why you defaulted on an agreed payment plan 
  • reviewing a repayment plan, after an agreed period 
  • inspecting or recovering mortgaged goods. 

As a guide, contact from debt collectors should be limited to: 

  • a maximum of three calls or letters per week (or 10 per month) 
  • phone contact only between 7.30 am – 9 pm (weekdays), and 9 am – 9 pm (weekends) 
  • face-to-face contact only between the hours of 9 am – 9 pm (weekdays and weekends, and only if there is no other way to contact you) 
  • no contact on public holidays. 

Dealing with creditors and debt collectors 

When dealing with debt collectors, you should remember the following: 

  • be cooperative 
  • be honest about your financial position, including your debts 
  • return calls and respond to correspondence within a reasonable time frame 
  • agree to a repayment plan (if you can afford it) 
  • tell the debt collector when your contact details change. 

If you are not cooperative, they may choose to take court action against you as an alternative (which will cost you more). 

Case study — Debt collector harassment

Jane falls behind in her car loan repayments when her employer reduces her hours at work. Jane contacts the finance company and asks for an extension of time to pay, as she believes her annual tax return will allow her to repay the full amount owed under the loan, which is only $6000. The finance company tells Jane they were processing her application, and she is still awaiting an outcome. In the meantime, a debt collector from the finance company starts calling Jane about three times a day demanding payment. At 6.30 am on Saturday, the debt collector comes to Jane’s home and demands the keys of her car. When she refuses, he pushes past her, grabs the keys and drives off with her car. 

Jane believes the conduct of the debt collector amounts to harassment, so she writes a letter of complaint to the finance company (see sample in Chapter 17). They investigate the matter and find their employee’s conduct was inappropriate. Jane gets her car back, her loan variation plan is approved, and she also receives a formal apology. 


Creditors or debt collection agencies are entitled to take vigorous (but reasonable) steps to pursue a debt you owe. However, there are limits to the extent of contact a creditor can have with you. For example, debt collectors cannot: 

  • use physical force or coercion 
  • harass or hassle you to an unreasonable extent 
  • mislead or deceive you 
  • take unfair advantage of a vulnerability, disability or other similar circumstance affecting you (this is known as ‘unconscionable conduct’). 

These laws apply to all debt collectors’ conduct towards you, your family or other people connected to you. 

Examples of unacceptable behaviour by a debt collector may include: 

  • telephoning you before 7.30 am or after 9 pm (unless agreed) 
  • visiting you before 9 am or after 9 pm (unless agreed) 
  • unnecessary repeated calls (more than three times per week or 10 times per month) 
  • telephoning or visiting you at work when you have asked them not to 
  • using or threatening violence to you or your property 
  • blocking access to your property or blocking your way 
  • shouting at you or verbally abusing you 
  • taking property that is not ‘secured’ by the debt (like household items) 
  • garnishing your wages (without a court order) 
  • sending you letters that ‘look’ like court documents 
  • breaching your confidentiality (for example, contacting you at work and disclosing the reasons for the call, or contacting you via social media in a way that releases confidential information) 
  • telling you that you will go to gaol if you don’t pay the debt 
  • making false and misleading statements. 

Complaints about harassment 

If you’ve experienced harassment, intimidation, misleading or deceptive conduct, you should consider making a formal complaint. 

Some of your options include: 

  • contact NSW Police if you have immediate fears for your safety 
  • if you are being harassed or intimidated by a debt collector, you should make a formal complaint (see sample letter to debt collector — alleging harassment in Chapter 17). 
  • if the debt is related to a financial service or credit product (mortgage, personal loan, credit card), you can make a complaint to the Australian Financial Complaints Authority (AFCA) 
  • if you are currently bankrupt, refer the debt collector to your trustee 
  • the Energy and Water Ombudsman NSW (EWON) can deal with complaints about debt collection by energy and water providers 
  • the Telecommunications Industry Ombudsman (TIO) can deal with complaints about internet and telephone providers 
  • the Australian Competition and Consumer Commission (ACCC) deals with general complaints about debt collection by non-financial services (for example, phone and utility bills or bills for professional or trades services) 
  • the Australian Securities and Investments Commission (ASIC) deals with complaints about debt harassment by financial service providers 
  • NSW Fair Trading may be able to assist with information and referrals. 

If you’re suffering creditor or debt collector harassment, get legal advice and draft a complaint letter detailing the harassment you have experienced. Send your letter to the most appropriate organisation listed above (see sample in Chapter 17). Most of the external dispute resolution schemes and consumer protection agencies have online complaint forms. 

Keep a written record of all correspondence, including dates, times and contact details. Do not be pressured into making repayments you can’t afford. 

See MoneySmart’s Dealing with Debt Collectors publication for further information. 

3.5 Debt recovery and the legal system 

If a debt collector is not satisfied with your response to their demand for payment, they may start court action against you. The next part of this chapter provides a brief overview of the legal system in NSW. 

Types of law 

Different branches of Australian law apply to different situations: 

  • Criminal law — deals with cases where the state (represented by the police or public prosecutors) believe that an individual has done something that is an ‘offence’ against the state — a court then decides whether that person is guilty of the crime/offence or not. This decision must be made ‘beyond reasonable doubt’. 
  • Administrative law — deals with decision-making by government institutions and aims to ensure that public officials are accountable for their actions. 
  • Family law — deals with disputes between people following the breakdown of a marriage or de facto relationship. Courts can make decisions about the distribution of property, parenting, child support and maintenance, as well as confirming separation, via divorce orders. 
  • Civil law — deals with disputes between individuals or legal entities (such as businesses and corporations). The court must decide who they think is correct, according to the applicable laws, on the ‘balance of probabilities’ (which is easier to prove than the criminal standard of proof). The debt recovery process is an example of civil law. 

Different courts determine different types of legal matters. State courts apply relevant state laws, and federal courts apply federal laws. 

State court system 

The NSW court system consists of the Local (lowest division), District and Supreme Courts. 

  • Local Court — hears civil disputes for claims up to $100,000. It has two divisions to determine civil cases — the Small Claims Division hears claims up to $20,000 and the General Division hears claims over $20,000 (and up to $100,000). It also deals with less serious criminal matters, traffic offences, and apprehended (domestic) violence orders. Chapters 9–15 of this guide provide detailed information for debtors facing Local Court action. 
  • District Court — hears civil disputes for amounts between $100,000 and $750,000. It also deals with more serious criminal cases and appeals from the NSW Local Court. 
  • Supreme Court — hears civil disputes of more than $750,000, and otherwise has unlimited civil jurisdiction. The Supreme Court also has original jurisdiction in areas such as probate, equity and other property-related matters. 

Federal court system 

The federal court system consists of the Federal Circuit Court and Family Court of Australia, the Federal Court, and the High Court. These courts deal specifically with matters which fall under federal laws. Federal courts usually only deal with debt matters, where the creditor is a federal agency (such as Centrelink or the Australian Taxation Office). The federal courts also deal with bankruptcy applications made by creditors, after they have obtained a judgment debt against you in the Local Court. 


There are various state and federal tribunals with different roles and responsibilities. For example, the NSW Civil and Administrative Tribunal (NCAT) has a Consumer and Commercial Division, which resolves a broad range of disputes such as tenancy and building matters, and disputes about the supply of goods and services. If you purchased faulty goods and the vendor is chasing you for payment, without offering a replacement, NCAT can provide user-friendly dispute resolution options. 

Ombudsman and alternative dispute resolution services 

In addition to courts and tribunals, there are ombudsman and related services, which provide independent investigation and dispute resolution services. These are usually industry-specific. For example: 

  • Energy and Water Ombudsman NSW (EWON) — deals with disputes with electricity, gas and water providers. 
  • Telecommunication Industry Ombudsman (TIO) — deals with disputes with phone and internet providers. 
  • Australian Financial Complaints Authority (AFCA) — deals with disputes with financial services and insurance providers. Membership is compulsory for all Australian financial firms that provide financial products and services. 
  • Fair Trading NSW — provides information about consumer protections and makes preliminary attempts to resolve disputes with retailers and traders.