Guide to the Debt Collection Process

If you've never gone through the debt collection process before, it can be a little intimidating. Before you give into the bullying tactics of debt collectors, you might benefit from knowing a little about the process and what you can do throughout each stage.

Stages of Debt Collection

There are various stages of the debt collection process. Your creditors are obliged to abide by specific rules as set out by the Consumer Credit Cods or by Stage Legislation.

  • Stage One: Defaulting On a Payment

If you've missed a payment on a bill by only a few days, this won't cause many problems. There are plenty of people who miss one payment every now and again and this isn't usually considered to be serious. You might receive a reminder letter or even a reminder call, prompting you to make a payment.

In fact, most creditors will allow you to fall up to 60 in arrears before they take any serious action. Once your account has fallen behind by more than 60 days, your creditors may begin to consider entering the debt collection process to recoup their money from you.

  • Stage Two: Default Notice

Under the terms of the Consumer Credit Codes within each state, creditors are obliged to notify you in writing that you're in arrears with your debt and that you're required to make a payment as per the terms of your original loan agreement. You're given 30 days from the date on the notification letter to catch up any overdue payments and clear any arrears.

After 30 days, this default notification will expire and your creditor may choose to list the default on your credit report. However, if you do make the required payment, the debt collection activity will simply stop.

  • Stage Three: Letter of Demand

Once the default notice has expired and your overdue account is now between 90 and 120 days in arrears, your creditors may then issue a Letter of Demand. The letter will specify that you are required to make a payment on or before a specified date.

This will no longer be just an amount due to cover the amount of the missed payment. It will usually be a demand to repay the entire outstanding balance of the debt.

Be aware that once a Letter of Demand has been issued, you will already have received a default listing on your credit report that can decrease your chances of being approved for new loan applications for up to 5 years.

  • Stage Four: Legal Action

If you still haven't responded to the Letter of Demand sent to you, your creditors may begin legal action to recover the total amount of the debt owing. At this stage, you'll be sent a Statement of Claim, which is a document issued by the local courts.

You will be given 28 days from the date you received the Statement of Claim to respond to the court. Your responses could be any of the following:

1. Refuse to pay the amount and dispute the claim, if it rightfully isn't yours

2. Confess to the debt and agree that you're in arrears

3. Apply with your creditors for a debt settlement agreement

4. File for personal insolvency or voluntary bankruptcy

  • Stage Five: Court Judgement

If you choose to ignore the Statement of Claim and not respond at all, the court will award a judgement to the creditor. The amount of the judgement debt may be far higher than the amount you thought you owed originally, as it will include interest, penalty fees and charges, and the creditor's legal costs.

You will also have a Judgement listing on your credit report that can seriously tarnish your credit history for up to 5 years

  • Stage Six: Enforcing a Court Judgement

Once your creditor has received a judgement, they are then able to apply to have the debt collection terms enforced. The court may request that you have your financial situation examined to ascertain whether repayment could have been made. If you refuse, the court can issue a warrant for your arrest.

The court could also decide to order your employer to deduct regular amounts of money from your pay to be sent directly to repay your creditors. This is called garnishing.

If you're only earning government benefits, these can't be garnished in the same way as your wages can. However, be aware that the court can request that your bank account can be debited to repay your outstanding debt.

Another option open to the court to recover your creditor's money from you is to allow a Sheriff to take items from your property to be sold as a way to raise funds to pay the debt.

If there is still a debt greater than $2,000 owing, then your creditor can choose to bankrupt you.

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10 Responses

  1. Default Gravatar
    VickiJanuary 17, 2017

    My son has a credit card debt of $3954 and the debt collection agency adds 20% interest per month is this fair? should he only be paying the debt amount at time the bank sold it to debt collection?

    • Staff
      MayJanuary 24, 2017Staff

      Hi Vicki,

      Thanks for your question.

      Sorry for the delayed reply. Basically, debt collectors will set up a debt payment agreement with you through their agency. There may be an interest rate depending on the particular debt agency, although generally there is only an agreed amount and payment term. If you disagree with the amount that is owed, you have a right to legally dispute it. The ACCC has detailed information on the different ways you can dispute debts based on different circumstances. You can find more information on this page on how to deal with credit card debt collectors.


  2. Default Gravatar
    samAugust 23, 2015


    I have a number of outstanding debts in my name, all debts are 7+ years ago, these include- a credit card, mobile phone bill & unpaid train ticket fines.
    I’d say in total just under $10,000 max would be no more than 12-15000.
    I was contacted by sheriffs over 8 or 9 years ago on one occasion but this was never followed up.
    I relocated 7 years ago and none of the debts were ever chased. I have not received a phone call, letter or notice for over 7 years.
    I was wondering if the Limitation of actions Act would apply to me in this case?
    Thank you kindly

    • Staff
      SallyAugust 25, 2015Staff

      Hi Sam,

      Thanks for your inquiry.

      The Limitation of Actions Act varies and depends on which part of Australia you’re in.

      One thing’s for sure though, if you wish to ensure financial freedom, you need to settle your debt.

      To serve as your guide, kindly check our Dodging Debt Collectors – A Very Bad Idea and How To Find Relief From Your Debt pages.

      I hope this has been helpful.



  3. Default Gravatar
    AndrewJuly 25, 2015

    Hi Jonathan,

    I have 100k in credit card debt and I am in currently overseas and will not be able to pay the even minimum payment.

    My concerns are below

    1) If I return after 1 year will I be in any trouble at immigration ?

    2) What action can be taken by my credit providers?


    • Staff
      JonathanJuly 27, 2015Staff

      Hi Andrew, thanks for your inquiry!

      Immigration is mainly concerned with an individual’s citizenship/ visa eligibility and is not directly affected by credit history.

      Unpaid credit card debt can be sold by a bank/ lender to a debt collecting agency. Debt collecting agencies can possess international jurisdiction to collect debts. Please refer to this page for more information on the debt collection process.



  4. Default Gravatar
    SashaApril 30, 2015

    I got a 21,900 credit card & 20,000 personal loan with CBA, outstanding balance is 33,000 combined. I am currently on a 3month payment plan of $400 paid out to each account in half.
    In arrears $890 CC, $500 PL.
    On completing 3 months it would be very hard for me to catch up with the payments
    1. Will I be getting another extension of 3months payment plan
    2. Can I offer a lump some amount after 3months to settle the account. If yes how much amount would that be?

    • Staff
      JonathanMay 1, 2015Staff

      Hi Sasha, thanks for your inquiry!

      Please note that is a comparison service and is not directly affiliated with the Commonwealth Bank of Australia. It would be best to contact them directly in regards to this inquiry. Please refer to the contact details I have sent to your email for the financial hardship department.



  5. Default Gravatar
    AnneApril 25, 2015

    I had a unpaid $10,000 CBA credit card under my ex-partner’s name in 2011. The debt collector contacted my ex-partner to demand $28,000 repayment. (CBA sold that debt and listed my ex-partner $13,000 unpaid credit card on credit report in August 2011). Please advise what I can do because my ex-partner wanted me to clear this matter.

    Kind Regards

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