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.Back to top