Consumer debts: An introduction

About consumer debts

• What is a consumer debt? 

  Not all money and debt issues are created equal. A fine is different to a mortgage. A mortgage is different to a consumer lease or mobile phone bill. This information focuses on consumer debts.   

  Consumer debts is a general term used to describe a range of debts with private companies, usually connected to the purchase or hire of things for personal use. Common examples include:  

  • electricity or mobile phone accounts 
  • small loans or credit (payday loans or consumer leases) 
  • car loans or credit cards 
  • buy-now-pay-later accounts  
  • unpaid bills with other private companies (e.g. a gym membership) 

   

  These types of debts may also be collected by debt collection companies. Some debt collection companies buy the debt from the original companies, others are paid by the original company to collect the debt on their behalf, but the account remains with the original company.  

  Consumer debts can also include debts where a private company says you owe money for something you’ve done (e.g. an insurance company chasing you for money following a car accident). While these types of debts have some different considerations, much of what this guide discusses also applies.  

• Different types of money and debt issues 

  Different types of money or debt issues are treated differently. The type of debt or money problem will change the options a person has and the impact of not resolving the issue.  

  The options to resolve a money or debt issue differ depending on:  

  • The type of debt 
  • Whether the debt relates to an account your client still uses (e.g. a current electricity account for the property they are living in) or a closed account (e.g. an old electricity account that has been closed) 
  • How old the debt is and how long it has been since your client made a payment or acknowledged the debt (some old debts will no longer be enforceable) 
  • Your client’s circumstances and priorities 

   

  For people experiencing extreme financial hardship, common types of consumer debts include: 

  • Payday loans (known officially as Small or Medium Amount Credit Contracts) 
  • Credit card debts 
  • Consumer leases (agreements where a person pays to rent products such as furniture or whitegoods) 
  • Car loans 
  • Debts with debt collection companies
  • Buy-now-pay-later accounts 
  • Unregulated credit loans  
  • Unpaid accounts, including mobile phone accounts, electricity/energy accounts, unpaid toll accounts, gym memberships   
  • Personal debts to friends and family 

   

  To find out about the options to resolve some of these debts, see Options to resolve consumer debts.

10 key things to know about debts 

• 1. You cannot go to jail for unpaid debts to private companies

  Unless you’ve committed a criminal offence like fraud or theft, you cannot be sent to jail for private debts you cannot afford to pay. If your client has a debt to the Government contact Victoria Legal Aid. 

• 2. There are limits on what creditors can do to make you pay a debt

  For example, a creditor can’t:  

  • Take and sell any property without a court order unless they have a mortgage or other form of security over the property. Even if they have a mortgage, there is usually a strict process they must follow and limits to what they can do without your client’s consent or a court order.  
  • Force your client to make a payment without their consent. Most creditors will need a court order to force your client to make a payment. This is a timely and expensive process. Even if a creditor does get a court order, your client may be ‘judgement proof’.  
  • Threaten, intimidate or harass your client or their family and friends. 
  • Turn up at your client’s home unless it’s at a reasonable time (usually between 7.30am and 9pm).
• 3. For people in financial hardship, a full waiver of a debt may be the best option

  We discuss your client’s options in more detail at Options to resolve consumer debts.

• 4. Centrelink payments are protected

  Centrelink payments cannot be taken to pay off debt. 

• 5. There are time limits to collect debt

  Although the exact period varies for different debts, most debts will be ‘statute barred’ after six years from the date of the last payment or a written acknowledgement of the debt. Once a debt is statute barred, a creditor can no longer start legal action to force your client to pay the debt.  

• 6. Your client may be judgment proof

  Various legal protections limit what a creditor can do to force a debtor in financial hardship to pay a debt, even if they get court order against them. For more information see Options to resolve consumer debts.

• 7. Bankruptcy (including Part IX Debt Agreements) may not be the best option

  For people experiencing significant financial and personal hardship, there are often other options that provide better outcomes. Your client shouldn’t enter Bankruptcy or a Part IX Debt Agreement without advice from a lawyer or financial counsellor.   

• 8. There are free services that can help you when you’re in debt

  Financial counsellors and community lawyers can often provide help with debt matters free of change. Financial Counselling Victoria has a useful tool for finding a financial counsellor.  

  For people experiencing significant financial and personal hardship, these counsellors are often a better option than private debt negotiation companies that charge fees for service.   

  You can use this tool to search for a community legal centre. 

• 9. Many companies have dedicated hardship teams that can assist when you are in debt

  Finding the right team within a company is often the first step. Asking to speak with a hardship team or an internal disputes team can help connect you to the right person. Many companies now have dedicated contact points for financial counsellors, which are also available to community workers. If you’re not sure if the company has a dedicated team, you can ask.  

• 10. It’s free to get a copy of your credit report

  The companies that keep your credit report must give you access to your credit report for free once every 3 months.  

  You read more about getting a copy of your credit report on Getting information about debts.