Demand for payment

Contributed by Ian Macdonald and Andrea Highman and current to 1 September 2005

LETTER OF DEMAND – FINAL NOTICE

A letter of demand is generally sent to the debtor if the debtor has fallen behind or failed to make a payment on debt. It is sent either by a creditor or a debt collection agency.

If the debtor receives an account for payment, he or she should ask:

• is the money owed?
• is there any reason why the debt should not be paid?
• can he or she afford to pay the debt? And
• what can be done if the debt cannot be paid?

The debtor should always respond to a letter of demand by contacting the person who sent the letter. This is essential if the letter contains a date by which the debtor must respond. If the debtor plans to see a financial counsellor or legal adviser, the debtor should advise the creditor of the appointment date.

Sometimes letters of demand may be designed to look like court documents, when they are not. If the debtor is in any doubt whether it is a court document or not, they should seek legal advice. If the debtor receives what looks like a court document but is in fact a letter of demand, he or she should complain because:

• it is a criminal offence for anyone to send such a letter (Unauthorised Documents Act 1961 (WA) (s.5); and
• debt collection agencies (but not creditors who collect their own debts using their own name) have to be licensed. An agency can lose its licence if it engages in conduct that constitutes unfair or improper harassment.If the debtor is in any doubt about the nature of a document they receive, or about the validity of the charges that are claimed in the document, legal advice should be sought immediately.

DOES THE DEBTOR OWE THE CREDITOR THE AMOUNT?

When the debtor receives an account or a letter of demand he or she should:

• check the amount the creditor is claiming. This is essential, as the calculation of the total amount owing is often quite complicated and open to mistakes;
• write to the creditor asking for a detailed statement of individual items, a copy of the contract, statement of account showing any payments previously paid, interest, terms, charges etc;
• where the letter of demand is from a debt collection agency, write to them too, saying that a letter has been written to the creditor asking for a detailed statement; and
• when the statement is received, check it carefully; if there appear to be any errors or areas of doubt, write to the creditor asking for correction or clarification of the statement.

A sample letter to a creditor is set out on the next page.

The debtor should not admit liability for the debt if he or she is not completely satisfied that:

• it is actually his or her debt;
• the amount being claimed is correct; and
• the debt is legally recoverable.

Where the debtor disputes liability for the debt he or she should again contact the creditor to discuss the matter, and also advise any debt collector that the matter is still in dispute. If the matter is not resolved within a reasonable time advice should be sought from a financial counsellor or solicitor, as the creditor may be preparing legal action.

It is important to be aware that it is the creditor’s right to add the legal recovery costs to the actual claim if legal proceedings are instituted.

OFFER OF PAYMENT

If and when agreement is reached on the amount owing, and the debtor is unable to pay,the debtor should attempt to make a repayment arrangement with the creditor. If this is done at an early stage, the debtor will avoid incurring further costs in addition to the debt.

Consider the best way to pay the debt that is both feasible for the debtor and acceptable to the creditor. Options may include:

• budgeting for fortnightly/monthly instalments;
• lump sum payments gathered from sources such as a loan from a family member, Centrelink Advance Payment or Emergency Relief; or
• a combination of both.

The debtor may consider getting a loan to pay the debt. This must be considered carefully as loans involving interest payments are likely to be higher than any interest charged on the original debt. If the debtor already has a bad credit record it is likely they would not qualify for a personal loan with a low rate of interest and may consider fringe credit, such as a short term loan with high interest charges or fees, or hocking personal goods at a pawn broker. Pressure from the creditor may be enough for the debtor to consider these options, but it may not be in the debtor’s long term interest to use these costly options.

When working out how much the debtor can afford to pay, the debtor should account for all their income and all their liabilities and recurring expenditure. Only after taking into account all these weekly payments and the possibility of unusual or emergency needs should the debtor make an offer to the creditor to settle the debt.

The debtor should write to the creditor with the offer of payment and a brief explanation of his or her financial circumstances. The more a creditor understands of the debtor’s situation, the more likely it is that they will accept a reasonable offer. A sample letter with offer of payment to the creditor is set out above.

A debtor should not enter into another contract with the creditor to pay the old debt plus interest. He or she should seek advice before entering into another contract.

LETTER TO CREDITOR REQUESTING DETAILS OF THE CLAIM

Your name
Your address

“Without prejudice”

Date

Name of business
Address of business

Dear Sir/Madam (name of contact person if known)

Re: Account number XXX 000

I refer to your letter of (date on their letter) in which you claim that my wife (name) and I owe
you $1,200.00 relating to services you provided to us on (date).

It is our understanding that this matter had been finalised and no money is outstanding.
Please provide us with a copy of the original contract and a statement of all payments made including the dates they were made.

As we are not satisfied at this stage that we owe the money we do not intend to admit liability or offer any payment.

Please contact us within 14 days with this information.

Yours faithfully

LETTER TO CREDITOR WITH OFFER OF PAYMENT

Your name
Your address

“Without prejudice”

Date

Name of business
Address of business

Dear Sir/Madam (name of contact person if known)

Re: Account number XXX 000

Current balance: $______

I refer to the above account with you held in the name of (name of account) and wish to make an offer of payment.

In November of last year I was made redundant from my position of (previous employment) and my only income has been Newstart Allowance from Centrelink since then.

I have attached an Income and Expenditure Statement and a Statement of Assets and Liabilities showing my current financial position, including my other debts.

I wish to pay this debt as quickly as possible and thank you for your patience in this matter.
I am able to access a Centrelink Advance payment of $500.00. I offer to send you this as part payment of the debt and pay the balance at a rate of $20.00 per fortnight. If accepted, the final payment would be made within four months.

Please contact me to advise if this offer is acceptable to you.

Yours faithfully

ASKING THE CREDITOR TO WRITE-OFF OR WAIVE THE DEBT

If the debtor has no capacity to pay and is not likely to in the future, he or she may ask for the creditor to write off the debt. A creditor may consider this option if they believe they have little or no chance of legal recovery of the debt, and that pursuit of the debt would be ‘throwing good money after bad’. Reasons for requesting to have the debt written off include the advanced age of the debtor, long term illness or unemployment, combined with little or no assets.

A write-off of a debt is not necessarily a permanent arrangement. It is simply an agreement by the creditor to not pursue the debt for a period of time, including an indefinite period of time. A temporary write-off may be requested where the debtor’s circumstances are expected to improve, for example in the context of illness, short-term unemployment or parental leave.

A write-off is different to a waiver. Waiving the debt has the effect of treating the debt as though it did not exist in the first place. This would only be agreed to by the creditor where there is evidence that the debt should not have existed, or where the creditor believes they would be unable to convince a court of the debtor’s liability.

To request a write-off or a waiver, the debtor should put the request in writing, explaining the reasons for the request and providing details of his or her financial circumstances. If requesting a write-off for a defined period, clearly request the time period required.

Waiver and write-off of government debts and the processes of applying are dependant on law and policy of each department. Check with the relevant department about eligibility criteria and application processes.

APPLYING FOR A MORATORIUM UNDER THE CONSUMER CREDIT CODE

The Consumer Credit Code provides for consumers of credit regulated by the Code to apply to their credit provider for a temporary moratorium on payments where they are under difficult financial circumstances.

As with requesting a temporary write-off, the consumer must first contact the credit provider explaining the circumstances and stating their request. Examples of appropriate requests include:

• Non-payment for a set period (up to six months);
• Interest-only payments for a set period;
• Offer to catch up with missed payments after a set period;
• Request to have the missed payments added to the end of the contract; or
• Request for interest to be suspended for a set period.

If the consumer’s request is rejected, the Code allows for the case to be taken to a court or tribunal for a decision. In Western Australia the Code provides for the Department of Consumer and Employment Protection, as the state consumer agency, to assist consumers in negotiating with the credit provider. A consumer should contact DoCEP for further information and assistance.