The life cycle of a bad debt

What are the stages of debt collection and what can creditors actually do?

Most people aren’t overly familiar with the different phases of debt collection and the options available to creditors trying to recover unpaid amounts. We’ve put together this handy overview so that you have a better understanding of where you might stand right now.

30 – 60 days without payment

Here’s where it all begins; the phone calls, text messages, overdue notices, email reminders and late fees.

60 – 90 days without payment

Once you pass the 60-day mark, you’ll likely receive a Default Notice (otherwise known as an S80). After the notice is issued, the creditor can then list a default on your credit history at any stage. Defaults will remain on your credit file for 5 years in total. Your creditor may further outsource the debt to a debt collection agency – this is when you might start receiving multiple phone calls from private numbers each day.

90 – 120 days without payment

You’ll typically receive a Letter of Demand, which will likely request payment of the total amount outstanding, and in full, within a 30-day period. By this stage, the creditor may have also sold the debt to a debt purchaser who will continue to pursue you for the outstanding balance.

Legal action

You may be served with a Statement of Claim from the Local Court and you will have 28 days to do one of the following:

  • Pay the debt (this could include; paying the debt in full, making a payment arrangement with the creditor directly or applying for a court-ordered instalment plan)
  • Dispute the debt
  • Propose a debt agreement, personal insolvency agreement or file for bankruptcy, or
  • Just ignore it (which we would never, ever advise!).


Should you be unable to pay, dispute or effectively defend the debt, the Local Court will likely enter a default judgment against you that could include additional costs. The court action will also appear on your credit report. Your creditor will now have up to 12 years to collect on this debt.

The last straw

Having a default judgment awarded against you opens up a few debt recovery avenues for your creditor. The most common ones are:

  • Garnishee. This is when the court makes an order forcing your employer to withhold and defer your wages directly to the judgement creditor. An order can also be made against your bank accounts.
  • Oral examination. You will be required to attend Court and answer questions about your financial affairs. You may be required to provide evidence of your income, bank accounts or finances. Failure to attend may result in the issue of a warrant.
  • Writ of Levy of Property. This is when a Sheriff can come to your home and forcibly remove items to sell in order to pay the judgment creditor.
  • Issue a Bankruptcy Notice. This is when the creditor takes steps to make you bankrupt.

Is a creditor trying to take action against you?

Don’t ignore it, call us on 1300 369 168 or make an online enquiry. The sooner you act, the sooner you’ll find a solution.

No matter what’s going on, our expert consultants will take you through the options that might be available.

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