Insights for consumers
If you owe legitimate debts, it may be possible to negotiate with the lender or debt collection agency for debt reductions and repayment plans when experiencing financial hardship. As part of this process, it is reasonable for debt collectors to ask for evidence of financial hardship before agreeing to write‑off substantial debts.
In this case, the borrower did not want to share their financial statements, but we were able to find a resolution acceptable to both parties.
When illness made debt repayment impossible
Tina was experiencing financial hardship. She had two historic debts, originally owed to a bank. The bank had sold the debts to a debt collector who was demanding payment. Tina was receiving budgeting advice from a financial mentor, who contacted Financial Services Complaints Limited (FSCL) for help.
Tina had two debts of approximately $8,300 and $12,800. The financial mentor explained that when Tina borrowed the money, she had a good job and could afford the loan repayments. Tina, now in her early 60s, was on a sickness benefit. The financial mentor said that Tina’s budget was in deficit, and he could not realistically see her financial situation improving. He asked if FSCL could help by asking the debt collector to write off both debts, as the debt recovery action was causing Tina significant stress.
Debt collectors can ask for hardship evidence — but compromise is possible
The financial mentor agreed that the debts were legitimately owed and that the debt collector had been reasonable, but Tina could not afford to repay the debts. They complained to FSCL as they were not making any progress with a hardship application with the debt collector.
The debt collector was prepared to reduce the repayment to a low amount. However, if Tina wanted the debt written off entirely, the debt collector would need to see bank statements for the previous three months. Tina refused to provide them.
Finding a fair deal with debt collectors during financial hardship
We considered it was reasonable for the debt collector to ask for Tina’s bank statements. If Tina wanted her debt written off, we considered it fair for the debt collector to have a full picture of her financial situation.
A balanced outcome: partial debt write‑off and affordable repayments
After our involvement, the debt collector agreed to use the financial mentor’s assessment of Tina’s finances, but would not write off all the debt, as Tina did not provide bank statements.
The debt collector offered to:
- write-off the $8,300 debt
- reduce the $12,800 debt to $9,000
- not charge any further interest or fees
- accept payments of $20 a week for three years, when they would reassess Tina’s situation.
We considered this to be a reasonable settlement offer. Tina accepted the offer and the complaint was resolved.
