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Debtors' options
If you’re having trouble meeting your repayments to a creditor it’s important to act quickly to address the problem. The longer you leave it, the less options you are likely to have.
A financial counsellor can help you to work out exactly what you owe and to make a plan about how to repay it. See ‘Getting help with financial problems’ (link below).
Work out what you owe
The first step is to work out what you owe and who you owe it to.
Write down your income (after tax), either weekly, fortnightly or monthly, then work out your costs over the same time. Include regular bills such as electricity, gas and telephone.
Write down all unpaid bills. Remember to list all your debts and potential debts.
You can use the statement of finances and creditor listing worksheets on the ‘Assets & debts worksheets’ page to do this (link below).
Joint debts
A joint debt is one that you owe with one or more people for a contract that you entered into together. If the other person is not able to pay their part of the debt, you may be responsible for paying the whole debt. See ‘Joint debt’ (link below).
Business debts
If you are a small business operator and have not formed a company, you are responsible for the business debts as well as your personal debts.
If you have a business partner, you will be ‘jointly and severally’ liable for the debts of the business. This means that each of you is responsible for the entire debt. If one borrower can’t be pursued for payment, the lender can pursue the other borrower/s for the entire debt.
If you have been running a company you need to work out which debts are owed by the company and which debts you owe personally. For example, your company may have entered a lease agreement but you may have personally guaranteed the payment of the rent.
Assets
You also need to consider what assets you have, such as a house, car, superannuation entitlements and investments. You may need to get advice on which assets to try to protect, and which could be sold or converted into cash to pay your debts.
If you are considering cashing in superannuation or other similar policies, or if you are selling shares, make sure you get advice that explains taxation issues and maximises the return you get.
Make a plan to pay your debts
The greatest temptation is to pay the creditors who hassle you the most. It is better to deal with all your debts in a planned way. You can get help to prepare your plan from a free financial counselling service or community legal centre.
If you cannot pay all the bills when they are due but you think you could pay them if you were given more time, try to work out a realistic plan to put to your creditors. You may be able to negotiate with creditors to:
- make smaller repayments over a longer period of time
- postpone repayments for a period of time
- postpone repayments and then pay the remainder over a longer period of time.
Some creditors may agree to accept less money than originally agreed if a change in your circumstances, such as becoming unemployed, means you cannot pay back the full amount.
In preparing your plan, keep in mind the steps your creditors may have taken to protect the money they lent you, for example:
Have you given a mortgage over your house or vehicle?
If you have, work out how much equity you have in that property. (Your equity is the value of the property minus the amount owed to the creditor who has the mortgage.)
If you have a lot of equity, your creditors may give you more time to pay or accept lower payments for a time. This is because the value of the debt can still be recovered from the property.
If you have little or no equity, your creditors might be less likely to give you time. It helps if you have a good plan to pay your debts.
Has anyone else said they will be your guarantor (pay your debt if you cannot)?
If they have, and you have not paid what is owing, the creditor will probably demand payment from the guarantor. If the guarantor gave a mortgage over their house, the creditor could sell the house if the guarantor cannot pay what you owe. See ‘Co-borrowers & guarantors (link below).
If the guarantor is involved in your repayment plan, and the creditor believes the debt is adequately secured by you or the guarantor, then the creditor may agree to your plan.
If your plan is rejected
You cannot force your creditors to accept your plan. If they reject it, they will need to take action to recover the money owed.
‘Secured creditors’ who are not prepared to give you more time will probably take steps to enforce their security, for example, by seizing and selling the asset over which they have security.
‘Unsecured creditors’ (creditors who do not hold security or mortgage over property) may go to court and ask for an order that says you have to pay them. If that happens, see ‘Being sued’ (link below).
Other options
You may apply to the court for an instalment order to pay off the debt by making regular payments. See ‘Instalment orders’ (link below).
You may apply to be made bankrupt – a legal process where you are declared to be unable to pay your debts. See ‘Bankruptcy’ (link below).
Both of these options are available to debtors:
- before a creditor takes legal action
- after legal action has been started
- after a court has made a judgment against you.
Get advice from a financial counsellor about your options and your situation.
More information
Getting help with financial problems
Related publications
Debt problems: the law, your options
How we can help
Call Victoria Legal Aid’s (VLA) Legal Information Service for free information over the phone about the law and how we can help you with your legal problem. You can speak to a legal information officer in English or ask for an interpreter. Phone (03) 9269 0120 or 1800 677 402 (country callers), Monday to Friday from 8.45 am to 5.15 pm.
VLA’s other free legal services include:
- advice at VLA offices and other locations across Victoria
- lawyers who are on ‘duty’ to help at many courts and tribunals.
For some matters we can provide you with a lawyer to help you run your case.
To find out more about any of our legal services see What we do.
Who else can help?
See Getting help with financial problems for details of free financial counselling services in your area and other organisations that can help you.