Legal action

All credit providers (including finance brokers and debt collectors) must be members of an External Dispute Resolution scheme (EDR). This means that if you have a dispute then you can go to EDR about your dispute in most circumstances.  You can talk to a financial counsellor for help with this.

EDR is the main way to resolve a dispute and is much better than going to Court because:

• It is free for consumers;
• It is independent
• You can lodge a dispute even if you are being sued as long as judgment has not been given
• All enforcement action stops while EDR considers your dispute
• The decision of the EDR Scheme is binding on the EDR member if you accept the decision. If you don’t accept the decision you can still go to Court (subject to any time limits)
• EDR Schemes can decide on repayment arrangements due to financial hardship under the Credit Law

There are upper limits on the amount in dispute that industry ombudsman schemes can investigate. Currently these limits are $500,000 for both the Financial Ombudsman Service and Credit Ombudsman Service.

The first step in resolving a dispute is to talk to the provider. If you can't resolve the problem, then lodge a dispute with an EDR scheme.

Credit providers, brokers and debt collectors

There are two EDR Schemes in the credit area.  They are:

Financial Ombudsman Service (FOS) - Ph : 1300 780 808

Credit Ombudsman Service (COSL). Ph: 1800 138 422

You can check which EDR Scheme applies by ringing the Financial Ombudsman Service on 1300 780 808 or searching their websites.

You need to lodge a dispute in writing in EDR. Do not just ring EDR as your dispute is not lodged if you ring.  If possible you should lodge the dispute online, as it will be received straightaway.  Keep a copy of your dispute form.

If you are at risk of:

• Court proceedings being commenced against you; or
• Court proceedings have commenced but a judgment in Court has not been obtained;

Then you should lodge in EDR immediately and seek urgent advice.

Telecommunications

If your dispute is with a telco, contact the Telecommunications Industry Ombudsman - 1800 062 058

Utiliites

If your dispute is with a utility company, contact your local energy and water ombudsman. There are independent ombudsman schemes in every state.

Insurance and Investments

If your dispute is about insurance or investment advice contact the Financial Ombudsman Service - 1300 780 808.

If you ask the scheme to investigate your dispute, you will have to authorise them to disclose the details you have shared with them to the provider. They may request additional information and conduct an investigation as they try to resolve the dispute in a way that both parties accept.

This process may take a number of months. If a resolution is found, you and your provider will be required to enter into a written agreement.

If you and your provider continue to disagree, you can object to the proposed resolution in writing and ask for further examination of the dispute, and a formal decision from the ombudsman.

Rulings from the dispute resolution schemes include details about the rights, obligations and liabilities of both parties, and are binding on the provider. If you are not satisfied with the outcome of the process, you may take the matter to a court for hearing and determination.

Court action can be expensive and you may not have a better chance of success. You should get legal advice before rejecting a Finding or Recommendation of any EDR scheme.

If you are in debt and have legal problems, you may not be able to afford a private solicitor. However, community legal centres and Legal Aid agencies offer free legal advice, and services are available in every state and territory.  Don’t be afraid to ask for help, whatever your legal and financial situation. Be assured that if you seek legal advice, your details will be kept confidential.

Visit National Association of Community Legal Centres (NACLC) for details of community legal centres across Australia or call NACLC on 02 9264 9595.

You can also look up the ‘Community Advisory Services’ section of the Yellow Pages for a list of community legal centres in your area.

ACT – Legal Aid ACT 1300 654 314

NSW – Legal Aid New South Wales 1300 888 529 or 02 9219 5000

Northern Territory – Northern Territory Legal Aid Commission 1800 019 343

Queensland – Legal Aid Queensland 1300 651 188

South Australia – Legal Services Commission of South Australia 1300 366 424

Tasmania – Legal Aid Commission of Tasmania 1300 366 611

Victoria – Victoria Legal Aid 1800 677 402 or 03 9269 0120

Western Australia – Legal Aid Western Australia 1300 650 579

ACT - Consumer Law Centre of the ACT  02 6257 1788

NSW – Consumer Credit Legal Centre NSW 1800 808 488

NSW – Redfern Legal Centre 02 9698 7277

Queensland – Caxton Legal Centre 07 3214 6333

Victoria – Consumer Action Law Centre  1800 466 477 or 03 9629 6300

Western Australia – Consumer Credit Legal Service WA 08 9221 7066

You can also seek advice from a private lawyer. The Law Society in your State/Territory may be able to assist with a referral.

You can receive court documents:

• *  At the first stage of being sued in court, or
• *  After judgment has been obtained against you, or
• *  About enforcement of a judgment debt.

You will know you are being sued when you receive a formal document that has been issued by a court or tribunal.  This document is called different things in different parts of Australia.   It might be called a “Claim” or a “Statement of Claim” or a “Complaint” or a “Summons”.

You can check that it has been issued by a court or tribunal because it will have:

The name of the relevant court and a court stamp

A court number

A section telling you what will happen if you do not respond within a certain time.

Sometimes debt collectors will send you documents that look like formal court documents, but they are not actually issued by a court.  If you are unsure whether the court or tribunal has issued the document you can ring the court or tribunal to check.

There are different rules in different courts and tribunals about how you must receive the documents.  In some cases the court document has to be handed to you personally or left at your address, but in other cases it can be sent by certified mail, or even by ordinary post.

The document will tell you how long you have to respond. The time limit is different in different parts of Australia.  As soon as that time is up, the creditor suing you can apply to court to get judgment against you if you have not lodged your own documents to defend the claim.

You should get legal advice quickly about how to respond to the court proceedings.  A lawyer can advise you whether you have any basis to defend the claim.  This is important because defending a claim where you have no real defence will only add to the amount of the debt.

You have 5 options once you have received a Statement of Claim. You should get legal advice before taking one of these options.

Option 1 – Go to external dispute resolution

If the amount claimed is some form of credit you can usually lodge a complaint in an independent external dispute resolution scheme (EDR) if

You are  in financial hardship and/or

You have a reason why you do not owe the debt claimed.

Lodging a  complaint with EDR stops the court action until the matter is dealt with by the EDR. You can only go to EDR before the plaintiff obtains judgment.

Option 2 – Do nothing

If you do nothing, your creditor is likely to get judgment against you. This means that the court will make orders that you owe the money claimed and the creditor will be able to enforce the judgement.

Option 3 – Negotiate with the creditor

Even once court action has started you can negotiate with the creditor.

Option 4 – Confess the debt

Confessing the debt is when you agree that you owe the money and you fill in some forms with the court.  This means the creditor gets judgment against you, but the costs claimed against you might be lower because you have agreed to the debt rather than making the creditor get judgement.   Once you have confessed the debt, you can apply to pay off the debt by instalments.

Option 5 – Defend the court action

You defend a court action by lodging documents with the court setting out your defence to the claim against you.  You might also combine this with any claim you have against your creditor.  The defence must be lodged with the court before the time limit given in the claim document.  Court procedures are different in each State and Territory and you will need to get legal advice about how to defend the claim in that particular court.

f you are behind on your car loan, a lender starts repossession of your car by sending you a default notice.  You need to take action as soon as you receive this.  The default notice will give you at least 30 days from the to pay the amount you are behind on repayments.  If you pay this and your usual repayment within the time given, then the loan returns to normal and the lender cannot take any further action. This is the best option if you can do it.

If you don’t pay then the lender can:

• Accelerate the debt, which means the whole debt is owing not just the arrears
• Repossess the car
• Start court proceedings
• List a default on your credit report

The lender needs the extra step of a court order to repossess a car if:

• It is on private property and you have not given written consent for them to come on to the property,or
• You have repaid more than 75% of the loan and the amount now owing is less than $10,000.

The lender cannot repossess the car if you have lodged a dispute in writing in an External Dispute Resolution Scheme and that dispute that is still underway. (See the fact sheet on "Disputes" on this page.)

If the lender tries to repossess the car in these circumstances, you can explain that they do not have the right to repossess the car.  This may give you more time to use your car or find the funds to settle the debt.  But it may delay the inevitable and cost you more money.

If you can’t pay the whole amount, but you think you can catch up and keep the car, you need to:

• Contact the lender immediately to negotiate a repayment arrangement and explain that you are in financial hardship
• Try to get a repayment arrangement agreed before the default notice expires
• Keep paying what you can afford to pay.

If the lender agrees to a repayment arrangement, then this should stop any further action.

If the lender will not agree to a repayment arrangement you can lodge a dispute in writing in an External Dispute Resolution Scheme.  The lender must be a member of an EDR scheme. EDR is free and will stop all legal action. This means that the lender cannot repossess your goods until the EDR Scheme has considered your dispute.  You should also get legal advice  to get help about how to run your dispute in EDR. (See the fact sheets about "Disputes" and "Legal Advice" on this page.)

If you know you can’t keep up with the loan, you can still try to negotiate with the lender to:

• Sell the car yourself  and pay out the loan, or
• Hand over the car so that the extra costs of repossession or court action are avoided

See the fact sheet on "Car Loans" on the Everyday Money page.

Once your car has been repossessed, the lender must give you a written notice within 14 days of the repossession stating:

• The date the car was taken
• The estimated value of the car
• The enforcement expenses incurred to date and any other enforcement expenses (such as the daily storage rate for the car), and
• A statement of your rights.

The lender cannot sell the car until 21 days after the date of this notice.  The lender must return the car to you if you pay the amount of the arrears, the enforcement expenses and your normal repayment (if it is due during the notice period) within the designated time period of the repossession notice.  If the enforcement expenses claimed seem too high, check your contract and get legal advice. If you can get back on track, but cannot pay the amounts required within the 21 days, lodge a dispute in writing in an External Dispute Resolution Scheme (EDR).    If you do this, the lender cannot sell the car until the EDR Scheme has considered your dispute.

If you don’t make the payment within 21 days, the lender must sell your car as soon as possible for the best price reasonably obtainable.  The lender then needs to send you a letter stating:

• The net proceeds of the sale,
• The amount required to pay out the remainder of the loan, and
• Any other recovery actions against you.

Once the car has been sold, your whole loan becomes due to be paid immediately.  The lender does not have to agree to any repayment arrangement.

You can complain to an External Dispute Resolution scheme (see fact sheet on this page) if the lender has not sold the goods for the best price reasonably obtainable, or you believe the enforcement expenses added to the loan have not been reasonably incurred. You will need evidence to support your complaint. You will not get the goods back.

Repossession can be complicated and you can get legal advice about your rights.  You can also talk to a financial counsellor who may be able to help you negotiate with your lender.

If you are behind on your home loan a lender must take a number of steps before it can repossess your house. The sooner you act in the process, the more likely it is that you can make a repayment arrangement with the lender and hopefully save your home.  Even if you cannot save your home, acting early means you get to sell it on your own terms, often resulting in a better price.  More information about dealing with mortgage stress is available here.

The various stages in repossession of homes are described in the next sections.

Your lender has contacted you in some way - by phone, letter, SMS - after you have missed a repayment

The best thing to do is to contact your lender. See if  you can work out how you can get back on track. You might need to prepare a budget so that you are clear about what you can afford. You could also think about selling some other assets.

Lenders are legally obliged to consider your application for hardship assistance, to temporarily reduce your repayments or extend the term of the loan.

However, if your financial difficulty may be of a longer term, you may need to think about selling your home (see the fact sheet on the Everyday Money page).

If you cannot agree on a repayment arrangement that you think is fair and reasonable, you can lodge a dispute with an External Dispute Resolution scheme. (See the fact sheet "Disputes" on this page.)

Your lender has sent you a default notice. The default notice will give you at least 30 days to catch up on your missed repayments.

You can pay the amount that is owed and your usual repayment. Then the lender cannot start legal action.Or you can ask the lender to temporarily reduce your repayments or delay your repayments. This is called a hardship variation.  If you are not happy with the lender’s decision you can lodge a dispute with External Dispute Resolution (EDR).  Lodging with EDR will stop legal action until the EDR process is complete.You could also consider selling your home so you can sell it on your own terms. Get legal advice urgently.

See fact sheets on this page re "Disputes" and "Legal Advice".

Your lender has sent you a Statement of Claim or Summons for the debt or for the repossession of your home.

You have a fixed number of days (depending on the State or Territory you live in) from the date the Statement of Claim/Summons is served to file a defence.If you haven’t done so already you can lodge a dispute with External Dispute Resolution (EDR). Lodging with EDR will stop the legal action until the EDR process is complete.Whatever you decide to do, get legal advice urgently.If you do nothing, or file a defence and lose, the lender gets a court judgement.

See the fact sheets on "Disputes" and "Legal Advice" on this page.

Your lender has applied for a writ (a court order) to take possession of your home.

The lender has now moved to the enforcement stage. Get legal advice urgently.

See fact sheets on this page on "Enforcement" and "Legal Advice".

Your lender has applied for a writ (a court order) to take possession of your home.

The lender has now moved to the enforcement stage. Get legal advice urgently.

See fact sheets on this page on "Enforcement" and "Legal Advice".

Enforcement action is where your creditor has a judgment against you and uses the legal process to recover the judgment debt from you by:

• Forcing a sale of your house to pay the debt.
• Taking other property you have to be sold to pay the debt
• Taking money from your earnings or bank account to pay the debt
• Making you go to court to answer questions about your financial situation
• Making you bankrupt.

You cannot be sent to jail for not paying a civil debt.

If you find out that enforcement action is being taken against you, you should get legal advice about the options you have.  Even once enforcement action has started, your creditor might still be willing to negotiate and can talk to a financial counsellor to get help with this.

When your creditor has a judgment debt against you, your options are:

Pay the debt

Even at this stage, you can negotiate with the creditor about payment, for example you could offer to pay a lump sum that is less than the debt, or you could offer to pay it off over time. If you do reach an agreement like this, you should make sure you have some proof of this in writing and that you get receipts for every payment.

Apply to the court for permission to pay the money by way of installments if that would be more manageable

You will need to complete court forms and prove that your circumstances mean that you are not able to pay straight away, but you will be able to pay off the debt within a reasonable time.  Interest charges are added during the payment period.

Apply for voluntary bankruptcy

There are many serious implications of being bankrupt, and some benefits. You should talk to a financial counsellor before you take this decision. (See "Bankruptcy" on the Dealing with Debt page also.

When your creditor obtains judgment they can do any of the following:

• Agree to an arrangement for you to pay a lesser amount or to pay over time
• Make you go to court to answer questions about your financial situation
• Get a court order for to take money from your wages or bank account
• Get a warrant for the sheriff (sometimes called the bailiff) to seize and sell your property including your house, car and any other item of particular value
• Start proceedings to bankrupt  you if the debt is greater than $5000.

This is a court order (sometimes called an “attachment order” or a “garnishee” order) that requires money to be taken from your wages before you are paid or from you bank account to pay a debt. This order cannot be made for Centrelink payments you receive.

This sort of order can mean a great deal of financial hardship for you and may affect your ability to pay other debts and bills such as your rent.  If having your wages reduced by an attachment of earnings is causing you hardship, you may be able to apply to the court for an order to pay your debt by installments. With an installment order, the repayments can be smaller and paid over a longer period and therefore more manageable.  You should get legal advice, as the rules are different in different parts of Australia.

Once a warrant has been issued, a sheriff can come to your house and demand payment of the debt or take your property to sell it to pay the amount owed and reasonable enforcement costs.  Most sheriffs will allow you a short time to negotiate an agreement with your creditor, if you tell them you want to.

The sheriff can sell property that belongs to you, but can’t sell your basic household items. They can’t take:

• Something that belongs to another member of your household
• Anything rented or hired or
• Anything that is not fully paid for if it is used as security for the loan used to purchase it.

If you have no property of any value, and your income is too low to be redirected to pay the debt (for example if you are on Centrelink) it will be difficult for a creditor to recover any money from you without your co-operation. This is sometimes called being "judgment proof".

However, you need to keep in mind that the creditor has 6 years to sue you for most debts (and 12 years if the debt is based on a deed).  The creditor also has many years to enforce any court judgment obtained against you (in most parts of Australia this is between 12 and 15 years). You may accumulate income or property at some time in this period. If this is the case, you will have to pay the debt plus costs and interest, which after many years may be a large sum of money.

If you are judgment proof, you can write to your creditor asking them to waive the debt.  You can talk to a financial counsellor for help with this.

Sometimes the first you know about being sued is when your creditor tries to enforce a judgment against you.  In some cases it is possible to have a judgment set aside if you can prove:

• 1. That you did not get notified about being sued, and
• 2. You have a good defence to the claim.
• You should get legal advice immediately about this.

Once there is judgment against you, the creditor can proceed to enforce the judgment.