Options for resolving debts will depend on the type of debt, as well as your client’s personal and financial circumstances.
Where your client is behind on payments but still using the service (e.g. their current electricity account ) there are different considerations to closed accounts or debts to companies your client doesn’t need to continue working with (e.g. an old credit card debt). We discuss options for ongoing accounts below at Arrears on an ongoing account.
If your client received money (that is, credit) or had something financed, these also have specific considerations. Companies that provide credit have additional obligations and different laws apply to them. This includes banks, credit card companies, car loan companies and pay day lenders. If your client has paid the company more than they received, in some cases they could be entitled to a refund. If you think that is the case, your client should get advice from a community legal centre.
For most other debts, or where your client hasn’t paid back the amount they borrowed, the below options apply:
Options to resolve consumer debts
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Tips for negotiating with creditors
Exactly how you negotiate with a creditor will likely depend on things such as who the creditor is, your client’s circumstances and what they are trying to achieve, the role you play and the type of debt.
Before contacting a creditor, we suggest considering the below tips:
- Be careful not to admit that the money is owed (or acknowledge that your client has a debt). The client may not be legally liable for the debt (or a part of it). Acknowledging or admitting the debt in writing may also extend the period that the creditor has to collect the debt.
- If your client cannot pay the amount claimed, and this is unlikely to change, be upfront with the creditor and make it clear early what outcome (for example, a full waiver) you are seeking.
- It’s okay to ask the creditor what information they need to consider a waiver. That said, you do not need to give them everything they ask for – some creditors will ask for unnecessary documents or information. Some will ask for information that is personal in nature or that your client may be uncomfortable providing.
- Put your request in writing. A well written letter or email can increase your chance of the creditor agreeing to your request. If your client is comfortable, you may want to include any supporting evidence like a letter from a doctor or financial counsellor. A brief budget or a copy of your client’s Centrelink statement can also be useful.
- Any letter should equip the staff at the creditor to convince their boss that they should agree to your proposed resolution. You should clearly state what you want and why they should agree to it.
- If your client has a history of financial hardship, homelessness or other related trauma that will impact their ability to make payments, you may want to include information about these experiences. Unlike other letters of support, you should speak openly about the difficulties your client will face in improving their financial situation significantly.
- You may also want to highlight what it will mean to your client if the company agrees to your proposed resolution (for example, by agreeing to waive the debt). Some companies will be more likely to agree to the proposed resolution if they know it will have a positive impact on your client and the steps they are taking to respond to their experience of trauma or difficulties.
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Waiver
Many companies will agree to ‘waive’ a debt if you can show that:
- Your client cannot afford to pay the amounts claimed and doesn’t own any assets of significant financial value. In these circumstances, it would cost the company more to try to enforce the debt than they would legally recover.
- Your client’s personal circumstances justify a waiver. For example, where a debt was incurred by a violent partner or when they incurred the debt during a period of crisis.
Your client may be ‘judgment proof’. A person is considered judgment proof when they can’t be made to pay a debt, even if a court orders judgment against them. We discuss the protections that exist that make your client judgment proof in more detail below.
Companies are often aware of the limits to what they can do to enforce a debt against a judgment proof debtor (and the cost of commencing legal proceedings). If your client can show that they are (and are likely to remain) judgment proof, many companies will agree to waive a debt. This option may be the cheapest for the company and the best option for your client. Note however that some companies will be reluctant to agree to a waiver in the first instance and may push for a small payment plan. It may not be in your client’s best interest to agree to this, in particular where they are judgment proof.
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Hold or hardship variation
If your client can’t afford to pay the debt but expects to be in a better financial position soon, many companies will agree to vary the agreement or place the debt on hold. For some types of debts (eg consumer credit), people have a legal right to hardship variations.
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Payment plan
If your client concedes they owe the money and can afford a payment plan, most companies will agree to a manageable payment plan. The company may request to see a statement of financial position to assess what amount the client can commit. Be aware that vulnerable clients often require support to accurately complete this information. If the company rejects an affordable payment plan, your client should get advice from a community lawyer or financial counsellor.
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Bankruptcy
If your client is in significant debt, bankruptcy may be an option. Bankruptcy is a serious matter with significant consequences. It is often unnecessary for people experiencing or at risk of homelessness as there are likely other available options which will have less impact on your client. Your client should always get legal advice before applying to be made bankrupt or entering a Part IX Debt Agreement.
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Do nothing
Your client may choose to do nothing. We wouldn’t usually recommend this approach unless the debt is close to being ‘statute barred’ or has not been actively collected for a significant amount of time. If your client does nothing, the company may continue its attempt to collect the debt, including by:
- Continuing its attempts to contact your client, including by calling or emailing your client
- Selling the debt to or engaging a debt collection company to collect the debt
- Listing the debt as a default on your client’s credit report
- Commencing legal proceedings
If your client choses to do nothing, there are limits to what a company or debt collector can do when trying to collect a debt.
-
Arrears on an ongoing account
If the account is current and your client is still using the service (for example, an electricity account for the property your client lives in), the options are different to older, closed accounts. For these types of debts/arrears, the options often include:
- Negotiating with the company to enter a payment plan for the arrears, while also paying the ongoing costs.
- Applying for brokerage with a community agency or, for utility accounts, the Utility Relief Grant Scheme.
If your client no longer needs or wants the service, they may choose to close the account and then request that the alleged debt is waived or otherwise resolved. If a debt is waived, the company may choose not to offer a service to your client in the future.
If your client wants to continue using the service, they may be able to negotiate a fair and affordable resolution. Many companies now have hardship teams dedicated to considering the circumstances of customers or debtors experiencing difficulties. If your client falls behind in their payments on an open account, they should first speak with the company’s hardship team about their options.
A financial counsellor may be able to help your client to negotiate a manageable payment plan or apply for other financial relief for open accounts. Financial Counselling Victoria has a useful tool for finding a financial counsellor.
Utility relief grants
The Utility Relief Grant Scheme assists people who are unable to pay their utility bills due to a temporary financial crisis.
If your client is having issues paying water, electricity or gas bills they can contact their provider and let them know that they want to apply for the Utility Relief Grant Scheme. The provider should provide the forms needed to apply for relief grants. Alternatively, you can get them by calling the Department of Human Services (DHS) Concessions Information Line on 1800 658 521.
Utility Relief Grant Scheme conditions
The DHS website sets out that:
- Assistance may be provided to low-income households suffering a short-term (within last 12 months) financial crisis who are unable to pay for a current utility account or LP gas account and who are at risk of disconnection, restriction of supply, or non-supply of gas bottles.
- To be eligible, your client must hold at least one of the following concession cards:
- Pensioner Concession Card
- Health Care Card, or
- DVA Gold Card.
- Your client must be able to demonstrate that unexpected hardship has left them seriously short of money so that they cannot pay their utility bills without assistance and risk disconnection or non-supply.
- Your client must meet one of the following criteria:
- a significant increase in usage,
- a recent decrease in income, for example, loss of employment,
- high unexpected expenses on essential items,
- the cost of shelter is more than 30% of the household income, or
- the cost of utility usage is more than 10% of the household income.
The application should clearly set out the circumstances that have led to your client’s inability to pay the account.
Tips for negotiating with creditors
Exactly how you negotiate with a creditor will likely depend on things such as who the creditor is, your client’s circumstances and what they are trying to achieve, the role you play and the type of debt.
Before contacting a creditor, we suggest considering the below tips:
- Be careful not to admit that the money is owed (or acknowledge that your client has a debt). The client may not be legally liable for the debt (or a part of it). Acknowledging or admitting the debt in writing may also extend the period that the creditor has to collect the debt.
- If your client cannot pay the amount claimed, and this is unlikely to change, be upfront with the creditor and make it clear early what outcome (for example, a full waiver) you are seeking.
- It’s okay to ask the creditor what information they need to consider a waiver. That said, you do not need to give them everything they ask for – some creditors will ask for unnecessary documents or information. Some will ask for information that is personal in nature or that your client may be uncomfortable providing.
- Put your request in writing. A well written letter or email can increase your chance of the creditor agreeing to your request. If your client is comfortable, you may want to include any supporting evidence like a letter from a doctor or financial counsellor. A brief budget or a copy of your client’s Centrelink statement can also be useful.
- Any letter should equip the staff at the creditor to convince their boss that they should agree to your proposed resolution. You should clearly state what you want and why they should agree to it.
- If your client has a history of financial hardship, homelessness or other related trauma that will impact their ability to make payments, you may want to include information about these experiences. Unlike other letters of support, you should speak openly about the difficulties your client will face in improving their financial situation significantly.
- You may also want to highlight what it will mean to your client if the company agrees to your proposed resolution (for example, by agreeing to waive the debt). Some companies will be more likely to agree to the proposed resolution if they know it will have a positive impact on your client and the steps they are taking to respond to their experience of trauma or difficulties.
Waiver
Many companies will agree to ‘waive’ a debt if you can show that:
- Your client cannot afford to pay the amounts claimed and doesn’t own any assets of significant financial value. In these circumstances, it would cost the company more to try to enforce the debt than they would legally recover.
- Your client’s personal circumstances justify a waiver. For example, where a debt was incurred by a violent partner or when they incurred the debt during a period of crisis.
Your client may be ‘judgment proof’. A person is considered judgment proof when they can’t be made to pay a debt, even if a court orders judgment against them. We discuss the protections that exist that make your client judgment proof in more detail below.
Companies are often aware of the limits to what they can do to enforce a debt against a judgment proof debtor (and the cost of commencing legal proceedings). If your client can show that they are (and are likely to remain) judgment proof, many companies will agree to waive a debt. This option may be the cheapest for the company and the best option for your client. Note however that some companies will be reluctant to agree to a waiver in the first instance and may push for a small payment plan. It may not be in your client’s best interest to agree to this, in particular where they are judgment proof.
Hold or hardship variation
If your client can’t afford to pay the debt but expects to be in a better financial position soon, many companies will agree to vary the agreement or place the debt on hold. For some types of debts (eg consumer credit), people have a legal right to hardship variations.
Payment plan
If your client concedes they owe the money and can afford a payment plan, most companies will agree to a manageable payment plan. The company may request to see a statement of financial position to assess what amount the client can commit. Be aware that vulnerable clients often require support to accurately complete this information. If the company rejects an affordable payment plan, your client should get advice from a community lawyer or financial counsellor.
Bankruptcy
If your client is in significant debt, bankruptcy may be an option. Bankruptcy is a serious matter with significant consequences. It is often unnecessary for people experiencing or at risk of homelessness as there are likely other available options which will have less impact on your client. Your client should always get legal advice before applying to be made bankrupt or entering a Part IX Debt Agreement.
Do nothing
Your client may choose to do nothing. We wouldn’t usually recommend this approach unless the debt is close to being ‘statute barred’ or has not been actively collected for a significant amount of time. If your client does nothing, the company may continue its attempt to collect the debt, including by:
- Continuing its attempts to contact your client, including by calling or emailing your client
- Selling the debt to or engaging a debt collection company to collect the debt
- Listing the debt as a default on your client’s credit report
- Commencing legal proceedings
If your client choses to do nothing, there are limits to what a company or debt collector can do when trying to collect a debt.
Arrears on an ongoing account
If the account is current and your client is still using the service (for example, an electricity account for the property your client lives in), the options are different to older, closed accounts. For these types of debts/arrears, the options often include:
- Negotiating with the company to enter a payment plan for the arrears, while also paying the ongoing costs.
- Applying for brokerage with a community agency or, for utility accounts, the Utility Relief Grant Scheme.
If your client no longer needs or wants the service, they may choose to close the account and then request that the alleged debt is waived or otherwise resolved. If a debt is waived, the company may choose not to offer a service to your client in the future.
If your client wants to continue using the service, they may be able to negotiate a fair and affordable resolution. Many companies now have hardship teams dedicated to considering the circumstances of customers or debtors experiencing difficulties. If your client falls behind in their payments on an open account, they should first speak with the company’s hardship team about their options.
A financial counsellor may be able to help your client to negotiate a manageable payment plan or apply for other financial relief for open accounts. Financial Counselling Victoria has a useful tool for finding a financial counsellor.
Utility relief grants
The Utility Relief Grant Scheme assists people who are unable to pay their utility bills due to a temporary financial crisis.
If your client is having issues paying water, electricity or gas bills they can contact their provider and let them know that they want to apply for the Utility Relief Grant Scheme. The provider should provide the forms needed to apply for relief grants. Alternatively, you can get them by calling the Department of Human Services (DHS) Concessions Information Line on 1800 658 521.
Utility Relief Grant Scheme conditions
The DHS website sets out that:
- Assistance may be provided to low-income households suffering a short-term (within last 12 months) financial crisis who are unable to pay for a current utility account or LP gas account and who are at risk of disconnection, restriction of supply, or non-supply of gas bottles.
- To be eligible, your client must hold at least one of the following concession cards:
- Pensioner Concession Card
- Health Care Card, or
- DVA Gold Card.
- Your client must be able to demonstrate that unexpected hardship has left them seriously short of money so that they cannot pay their utility bills without assistance and risk disconnection or non-supply.
- Your client must meet one of the following criteria:
- a significant increase in usage,
- a recent decrease in income, for example, loss of employment,
- high unexpected expenses on essential items,
- the cost of shelter is more than 30% of the household income, or
- the cost of utility usage is more than 10% of the household income.
The application should clearly set out the circumstances that have led to your client’s inability to pay the account.
Is your client judgment proof?
Your client will be considered judgment proof when, because of their financial circumstances, a creditor is unable to enforce a debt even if they get a court judgment proving the debt is owed.
Your client may be judgment proof if they have limited or no income or their only income is from Centrelink and they don’t have any significant assets, that is they:
- Do not own and are not buying a house;
- Do not own any other assets or possessions of significant financial value, for example, savings or jewellery other than:
- A car worth less than $8,550;* or
- Tools of trade that are worth less than $3,950.*
- The debt isn’t secured against any specific property.
* These amounts change regularly – for the most up to date figures go to the Australian Financial Security Authority.
While a creditor may obtain judgment against your client, they won’t be able to enforce while your client is judgment proof. Creditors rarely start court action if they know a person is judgment proof because of the cost involved, which they are not likely to get back.
Where your client is judgement proof, it’s important to point out that they can decide whether to continue paying the debt or whether they should prioritise other debts and expenses such as rent, food and essential services bills.
While a company may not be able to enforce a debt, they may choose not to do business with your client in the future.
When and how do you rely on a client being judgment proof?
For someone that is judgment proof, the best option may be to request a waiver. If your client can’t afford to pay for food and rent, a payment plan may not be appropriate.
While not paying is not the best option for all judgment proof clients, it is the best option for a significant number of people experiencing or at risk of homelessness or others who are struggling to make ends meet on a day-to-day basis.
It can be expensive to pursue a debt or to seek judgment. Many creditors will agree to waive or write-off a debt where you can establish a client has limited assets or income, that this is unlikely to change in the near future, and that it wouldn’t be in the creditors commercial interest to continue pursuing the debt.
When negotiating with a creditor, you don’t need to use the term judgment proof or acknowledge that the debt is owed.
The content on the Workers’ Resource Hub is legal information for general guidance and not legal advice. The content on this webpage was last updated in August 2023. See full disclaimer and copyright notice.
