Debt Recovery and Collection – Frequently Asked Questions

Are you someone involved in debt recovery and collection, but constantly finds yourself confused and with questions that you can’t seem to find answers to?

If so, it is not unlikely that you are feeling stressed and anxious about the matter as debt recovery and collection may be your main source of income.

Debt recovery and collection can be a confusing and difficult task for anyone, and many can find themselves stuck and confused.

It is, however, important that you make sense of debt collection, especially if your business functions on debts, so that you can collect the money that is rightfully yours.

But how can I go about understanding debt recovery and collection?

Well, everyone is different, but having access to good information and someone to answer your questions is always a great start!

In this article our debt collectors will discuss some of the frequently asked questions about debt collection and recovery so that you can have a better understanding of it and how you can make it work for you.

When can creditors garnish wages?

If your creditor is not paying their debts, a warrant of redirection of earnings may be issued to their employer or another third party which will require them to withhold a portion of their salary each week and redirect it to you (the creditor) until the debt is paid.

The debtor must, however, be left with a minimum balance of money that they can use to continue to live, which is currently $504.60 (at the time of writing).

You will need to receive a judgement from a court that states that the wages may be redirected.

How do debt collectors find debtors?

So, you have a debtor that has skipped town or otherwise gone missing?  Debt collectors can help you with that! 

Skip tracing is a process used to locate debtors that have attempted to flee their debt, or that you cannot find for other reasons.

How it works is the debt collector will enter the name and any other known details of the individual into public databases, such as criminal records, housing records, employment records, utilities, etc, to try to find this person.

They may also use other sources to find them. This can be very effective as it uses the information needed in essential day-to-day living to find someone!

How do debt collectors collect a debt?

There are several methods of collecting monies using debt recovery and collection that are used by debt collectors.

The most common method of collection used by professionals is generally contacting and pursuing your debtor, both in person and over the phone.

This is usually a starting point that will be used, and the pressure of a debt collector can be effective in making a client pay their debt.

Otherwise, they will take legal action, garnish wages, or potentially seize assets.

Are debt collectors legal?

Yes, debt collectors are entirely legal as a profession and a tool for your business.

The question of legality comes into play when discussing the actions of debt collectors and creditors alike.

You see, there are rules and regulations that all people collecting debt will be required to follow.

It is important that you are aware of these rules so that you can follow them and ensure any party that you may hire to collect debts is also following them, as actions by debt collectors will be the legal responsibility of the creditor.

How much does it cost to hire a debt collector?

The cost of a debt collector depends entirely on their business model and the size of the debt they are collecting.

How most debt collection agencies’ function is based on a percentage of the debt.

This means that the collector will take a portion of the debt if they are successful in collecting it.

Some agencies will charge for their debt recovery and collection work regardless of their success, while some function on a “no collection, no fee” model.

How long can a debt be chased in Australia?

In Australia, the period in which you can chase a debt range across both states and the type of debt.

In most Australian States, the general rule is that there are 6 years between the last time a payment was made, the debt became payable, or the debt was last acknowledged by the debtor (whichever is the latest) that a debt can be pursued by a collector/creditor.

Do you have to pay debt collectors?

Yes, you have to pay debt collectors.

Again, the payment terms and conditions will vary from business to business, but all debt collectors will require payment for debt recovery and collection work.

What happens if you don’t pay debt collectors?

If you do not pay your debt collector, the same conditions as someone not paying any debt will apply.

First of all, damage to your credit score and increased interest rates will occur, along with the debt collector pursuing you with contact and other such tactics.

If you continue to not pay your fee, they will take legal action against you.

Can debt collectors take money from a debtor’s bank account?

No, debt collectors cannot take money directly from a debtor’s bank account.

For a debt collector to take the money of a debtor without them willingly making payments, they must receive a court order.

If the court order is granted they will be able to either garnish the wages of your debtor or they can seize a debtor’s assets, such as their house, car, or anything else with value.

This will generally be an absolute last resort, however, as it is better for all parties if the debt can be paid in a semi-normal manner (e.g. the debtor making payments themselves).

What can debt collectors not do?

There are specific guidelines around what a debt collector is permitted and is not allowed to do in relation to debt recovery and collection work.

As we discussed before, there are rules and regulations placed on anyone responsible for debt recovery and collection, and breaking said rules can result in legal consequences.

As stated by the Australian Competition & Consumer Commission (ACCC), a debt collector cannot do any of the following when collecting a debt.

• Use any physical force.
• Harass or hassle the debtor unnecessarily.
• Use coercion.
• Mislead or deceive the debtor.
• Take advantage of a disability, vulnerability, or other feature that affects the debtor.

Does the debtor still have to pay the debt if it has been sold?

Yes, your debtor will still have full liability for the debt once it has been sold.

When you sell one of your debts a new creditor will now be responsible for the collection of the debt.

This means that if you find yourself buying a debt, you will now have the right and responsibility to recover it.

This also means that if you sell your debt you are no longer responsible for it in any way, so any attempts to communicate about the debt from the debtor are no longer your issue, so to speak!

What happens if someone you sue for a debt, and they can’t pay?

So, you have spent all of the effort suing someone and paid for the legal fees and all of the other details involved in debt collection, only for them to turn around and say that they cannot pay the money.

This may feel like the end of the road for you but fear not! You can still take action.

The first thing you should try to do is negotiate a payment plan with the debtor.

As much as it would be great to get paid upfront, getting paid at all is now the priority.

If that doesn’t work, it’s time to move onto, you guessed it, wage garnishing and asset seizing.

If that doesn’t work out either, it may be time to move on with your business and stop wasting your precious time on a debtor that probably genuinely cannot pay.

Will debt collectors work with you?

Yes, debt collectors will absolutely work with you.

As you are hiring them, they are at your service in the way that you can be as involved with the process as you deem necessary.

You can discuss what it is you need from them, and you can come up with a solution that works out effectively.

Say, for example, you need a debt collected from a valuable business relationship that you don’t want to lose, then tell the debt collector this!

This way, they can, so to speak, tread lightly with this particular debt and make sure that your business relationship is maintained to the best of their ability during the debt recovery and collection process.

Do debt collectors try to scare your debtors?

No, a good debt collector will not try to scare your debtors during the debt recovery and collection process.

This will have several disastrous effects on both your business and the debt recovery and collection process itself and is simply not good.

Not to mention the potential legal risks it poses. Instead, a debt collector should be patient but persistent and make sure that your debt is paid in a manner that is professional and appropriate.

If you observe any scare tactics or you have read reviews about a debt collector using scare tactics, it is best to choose another collector to better fulfil your needs.

Can debt collectors call your debtor’s work?

Yes, a debt collector is permitted to call a debtor’s work.

They do, however, have to follow some debt recovery and collection rules to protect the privacy and well-being of the debtor.

They must only contact them at their place of work if it is more convenient or appropriate to do so, for starters.

Once they have called the workplace and are speaking to an employee, they are not allowed to disclose any information about the debtor other than their name to request to speak with them.

This may not apply in specific circumstances in which more information is needed to recover the debt.

How should your debtors respond to a debt collection letter?

So, you have sent your debtor a letter regarding debt recovery and collection but are curious as to what their response should look like.

As soon as the debtor receives the letter they should respond at their nearest possible convenience to it so that the process can continue and run smoothly.

They may request an opportunity for a negotiation of payment terms to take place if they are unable to pay the debt all at once or as the agreement states.

If this is the case, it is wise to consider it as denying this proposal without enough consideration can be damaging.

Otherwise, the debt should be paid. If it is not, proceed to take the action that is next in your business's process.

How long do your debtors have to pay a judgment debt?

In Australia, your debtor will generally have to pay you immediately upon you obtaining the judgment, there is no requirement for notice.

This means that you should receive a payment from the debtor within this time.

If they do not make a payment within this timeframe, they will face penalties and further consequences.

How much power do debt collectors have?

Debt collectors are a great source of getting your debts from clients, but how much power do they really have?

After all, they must have quite a bit to be able to collect debts so effectively, right? Well, not necessarily.

You see, debt collectors mainly function on their knowledge and expertise about the craft, as opposed to the powers that they have over people.

They can contact and visit debtors without harassing them and they can initiate legal action, just like you!

How they differ from you, however, is with their ability to utilise all of their tools and knowledge to collect the debt with much more success than you!

Do debt collectors give up?

A good debt collector will never give up, but there comes a time when they will recommend that you cut your losses and end the debt recovery and collection pursuit.

Debt collectors have practically an endless supply of resources and tactics that they can use to collect your debt.

Debtors, however, seem to have an endless supply of problems, lies, and excuses that prevent you from successfully collecting the debt.

They will, in most cases, eventually be able to collect most debts, but it is a matter of whether or not the pursuit of the debt is worth it for you!

What is harassment by debt collectors?

Harassment by debt collectors occurs when they act in a manner that is intended to coerce or scare a client into paying their debt.

This may include repeated phone calls, unlawful threats of legal action, misrepresentations of the debt, or disclosing information to a third party about a client illegally.

All of these actions are not allowed by debt recovery and collection law and can result in penalties for you.

As previously mentioned, actions by debt collectors are legally reflected onto you as a creditor, so be aware of the laws and keep an eye out for their violation of them.

What happens when a debt is sold to a collection agency?

When a debt is sold to a collection agency, that agency will now have full responsibility and control over how that debt is handled and managed.

This means that they will put in place any debt recovery and collection tactics or tools that they may use.

If you choose to sell a debt from your business, you will receive money outright and will no longer have to manage the debt.

This may sound like a win-win scenario, but it is worth noting that you will be paid less than the debt is worth.

This can still be worth it, however, especially if you have a non-performing or consistently outstanding debt.

Can a debt collector make threats?

No, in debt recovery and collection matters, a debt collector is not permitted to threaten your client in any way.

Threats can include threats of violence or physical harm, empty threats of legal action that the debt collector is not permitted to take, blackmail, or more.

The Australia Securities and Investments Commission sets out what is considered a threat and that threatening behaviour is not permitted by debt collectors.

How does debt recovery and collection work in Australia?

Debt recovery and collection occurs when a creditor or debt collector undergoes means of collecting a debt from a debtor.

This can work in many ways and several processes can be used to do so.

The processes used will vary depending on the debt, business, and client or debtor.

How many times can a debt collector call your debtor?

When contacting your debtor in order to collect a debt from them, there are debt recovery and collections regulations in relation to a debtor, and they cannot contact them whenever they please.

Although there is no direct limit for the number of times they can contact, they must only contact a debtor for a reasonable purpose, such as to inform them of new information or make a demand for payment.

They must not deceive the debtor nor harass them.

The number of times a debt collector calls your debtor should depend on the number of accounts under their name, rather than the individual debtor, although it is preferred to limit contact as much as possible.

How long does it take for debt collectors to give up?

As discussed prior, a good debt collector will be persistent and continue chasing your client, provided it is in your best interest to do so.

If the debt collector observes behaviours that lead them to believe that your debt will take a significant number of time and resources to collect, they may advise you to move on and cut your losses.

What happens if a debtor doesn’t show up to court?

If you sue your client in debt recovery and collection proceedings and they do not show up for the court date, you may feel a bit defeated.

However, this is absolutely not the case! The court will generally rule in the favour of the creditor (you) if your debtor doesn’t show up for court.

Your issues won’t quite end here though! You will still have to be able to locate your client in order for justice to be served.

You can hire a debt collector to help you with this!

Can courts check your debtor’s bank accounts?

Yes, the court has the power to order access your client’s financial information, including their bank account.

This may be done to observe the client’s ability to pay a debt.

However, the court cannot just access someone’s bank at the click of a button! As it is someone’s private information at stake, proper procedure must be followed.

They can create a warrant that allows it to be checked and they can also ask the client directly!

What happens after a default judgement is issued?

A default judgement occurs when the court makes an order without the occurrence of a debt recovery and collection hearing.

As we discussed earlier, a default judgement will be issued if one or both sides fail to show up to court on the set date.

When a default judgement is issued, there can be action taken to set it aside, provided there is a valid reason presented to do so.

If this is not the case, the terms of the judgement should be fulfilled.

If no action is taken by the party the judgement is against, further penalties will apply.

Do debt collectors go to your debtors’ homes?

Yes, a correctly licensed debt collector does have the ability to go to a client’s home.

There must be specific debt recovery and collection circumstances that allow them to do this.

Debtors have the right to refuse the debt collector entry to their home.

The debt collector must also only come to the home of a debtor to provide them with information or for another reasonable cause.

Debt collectors must also not act threateningly and/or try to use intimidation tactics to force entry to the property.

Trespassing and harassment laws must also be followed.

Do you have to warn someone before sending them to collections?

No, there is no legal requirement for you to provide a debtor with a debt recovery and collection warning before hiring a debt collector.

Although it may be courteous to do so if you just want the debt to be collected and don’t have time for the rest you are well within your rights to send the debt to a collector without notice.

Most will make several attempts of collecting the debt themselves before hiring a debt collector, however.

Do debt collectors have to send a letter?

A debt collector is not legally required to notify the debtor before taking legal action against them.

However, the debt collector should notify the debtor of the amount of the debt, the details of the creditor, and the debtor's legal rights and responsibilities.

Furthermore, a debt collector must also provide any debtor with a written notice of the debt at least 5 business days before contact, providing them with much of the same information and also how they can go about disputing the debt if they believe it to be invalid.

If the debt collector wishes to take legal debt recovery and collection proceedings against a debtor as it has progressed to that point, they must again provide the debtor with a formal notice of the action.

This should be sent via official mail and will include the details about the hearing.

Key Takeaways

Debt recovery and collection can be difficult.

There are so many things to know and so many people to manage.

You can’t possibly understand it all! Well, hopefully, this debt recovery and collection FAQ can act as a guide for you just to learn the basics of debt collection.

It is hard, but you need to understand debt collection in order for your business to thrive!