Page last updated on 01/06/2020
What do the changes mean?
- At least one debt collection company has announced specific assistance for debtors affected by the pandemic. Credit Corp has suspended interest charges from 1 April 2020 to 30 June 2020 for all debtors and will not put any default listings on files for that period
- The approach you take to financial hardship is going to be very similar to the approach taken before the pandemic
- It should be easier to get interest stopped and fees waived
- Waivers or reductions in debt should be available for people in significant long-term financial hardship
- Stimulus payments and the coronavirus supplement should mean that some people can settle long-term debt for a reduced amount as a full and final settlement offer
- Some debt collection companies may suspend or reduce enforcement action but the extent of any change in approach is unclear at this stage.
- You need to consider immediately cancelling the direct debit for any existing repayment arrangement your client can no longer afford. Talk to the debt collector about different methods for making payments.
What do you do differently?
- Do inform the debt collector if your client has been financially affected by the pandemic.
- Do let the debt collector know if your client is receiving JobSeeker or JobKeeper payments.
- Take extra care to avoid deferring payments where interest and fees are still being charged.
- Make sure you consider the following issues in your negotiations:
- Late fees and default/legal fees not to be charged
- Interest not to be charged
- Repayments must be affordable
- Repayment arrangements will need to be reviewed because the pandemic is likely to be causing an impact for many months (and likely more than a year)
- Where your client is in significant medium-term to long-term financial hardship, creditors may be more likely to consider a request for a waiver or part waiver
- Negotiate a debt reduction in full and final settlement if the client has funds and the settlement would help financial stability
- For consumer credit: Ask for your client’s credit report to be marked as paid for the purposes of repayment history information (‘0”) if a repayment arrangement is made (and your client keeps to it)
- Ask for all enforcement to stop and that the debt collector contact you before they start/re-start enforcement action
Common problem: full and final settlement – reduced lump sums
The stimulus payment, coronavirus supplement or payments to cover holiday leave may mean that clients have access to lump sums.
- Make it clear that the reduced lump sum offer is in full and final settlement of the debt
- Tell the debt collector that the negotiations are on a “without prejudice” basis
- Keep a detailed file note of all conversations
- If the debt collector agrees to your offer, make sure you confirm the settlement in writing via email
- Get instructions from your client about when they can make the payment and how
- Make sure the client has the money in their account before making an offer
What has not changed?
Debt collection is still occurring
Debt collectors can still call people to chase payment for a debt
Lenders and debt collectors can start legal proceedings to seek a court judgment for a debt (if it is in default)
Debts can still be enforced in court but there are additional protections from forced bankruptcy. See Bankruptcy