What debt collectors can and can't do in Australia

Missed a payment and panicking? A former debt collector reveals what really happens when debt goes bad, and what to do first.

Debt trouble rarely arrives with a show of fireworks. It turns up as an email, a late fee, a missed direct debit - then you're suddenly in a conversation where the other side sounds certain and you're trying to work out what happens next.

Australia's debt pile is enormous. Australian Bureau of Statistics data puts household debt at $3.33 trillion as at June 2025, with the average household carrying more than $313,000, mostly mortgages. This household debt sits at around 113% of GDP, keeping Australia near the top globally.

Debt isn't automatically a problem. It can bring a first home forward, fund study, grow a business or smooth a big cost over time. But when the debt goes bad, people come knocking.

Laurence Barlow was one of these knockers, a former debt collector who ran large teams collecting for banks and finance companies. That's why he's switched sides, launching Small Business Reboot to help people avoid the knock and know how to answer the door if it arrives.

"I've lost track of the number of people we've had to talk back from the edge because they're scrambling to pay creditors and save the home," says Barlow.

The Australian Financial Security Authority says creditor petitions (a court debt-enforcement process that ends in bankruptcy) climbed from a COVID-era low of 671 in 2020-21 to 1447 last year. The Australian Taxation Office was the largest petitioner by both volume and value, lodging 247 petitions worth $184 million.

"Whether it's a bank or the taxman, they want to know there's a plan," says Barlow. "The earlier you engage, the more options you usually have."

Q&A with Laurence Barlow on debt collection, rights and next steps

What triggers a debt collection notice in Australia?

When you take out credit, you enter a legal contract. It sets out how much you borrowed, the interest, fees, repayment dates and what counts as a default.

A debt collection notice is usually triggered when you miss a repayment or another breach. You'll get reminders, then a formal demand, then escalation to a specialist team or an external collection agency if nothing changes.

A default notice isn't a court order but the lender telling you what's wrong and giving you 30 days to fix it before enforcement.

What should I do in the first 48 hours after getting a debt notice?

First, breathe. A debt notice is scary. But then get organised.

Move the conversation into writing. You need a paper trail.

Start a folder and build a timeline: dates, amounts, who contacted you and how, what was said and how you responded.

Ask for the documents. Get a copy of the contract or agreement and a statement showing the amount, how it was calculated and what you've paid. You're checking whether the paperwork matches what you're being told.

What can debt collectors legally do?

When your account slips, my job as a debt collector was to open a dialogue and get things grounded in facts and process. I could be self-employed or hired by a lender or a debt collection agency.

I would contact you to seek payment, offer a settlement or a payment plan, or check why an agreed plan wasn't kept. If you're on a plan, debt collectors can follow up to review it and explain the consequences if it isn't working.

If the debt is secured against goods, and only after the proper legal steps, they can organise repossession - though that's never a surprise visit at that point.

What can't debt collectors do under Australian law?

There's plenty that debt collectors must not do - we weren't just going around hustling people. We were at pains to not harass people or use any overbearing tactics.

We could only call Monday to Friday between 7.30am and 9pm, no more than three times a week and never on public holidays. We generally only meet face-to-face if no one has responded to our calls.

We couldn't trespass, mislead you or discuss your debt with someone else without your written permission.

Finally, we were trained to not take unfair advantage of vulnerabilities. If someone was ill, elderly, living with a disability or clearly out of their depth, collectors are expected to take that into account and offer realistic options.

How can I dispute a debt?

If something doesn't add up, dispute the debt in writing and ask for evidence.

For most financial firms, you can raise a dispute through the Australian Financial Complaints Authority. Once you've lodged a genuine dispute, collection should pause while it's addressed.

You can dispute a debt if it's not yours, you don't owe the full amount or you have some other legal grounds to challenge it.

If it's more than six years (or three if you're in the Northern Territory) since your last debt payment - and there's not a court judgement against you - you can also dispute it.

If you've already paid back the debt, include proof of payment.

What if I'm struggling to pay my debt?

If you're struggling to pay, hardship isn't a moral failure but a legal pathway. Work out what you can genuinely afford. Use a simple budget (Moneysmart's budget planner is a good resource) and be honest about your essentials and other debts.

If there's nothing spare, call the National Debt Helpline for free, confidential support. A financial counsellor can help you map options and draft words to your lender.

Next, ask your lender for hardship in writing. Under the National Credit Code you can lodge a hardship notice and change your repayments - for example, smaller payments for longer, or a short pause with a catch-up plan.

Lenders must consider the request and respond within set timeframes. While it's assessed, pay what you can, don't agree to an amount you can't sustain and get any deal in writing.

What are some common pitfalls to avoid?

• Ignoring the notices

Ignoring notices escalates the process and is often when debt collectors get involved.

• Acting while overwhelmed

Panic makes expensive promises. Stabilise first: get everything in writing, gather documents, slow the timeline and put a sustainable plan in place.

• Lying to the debt collector

Be honest about your financial situation, including other debts. Being uncooperative or misleading usually makes things worse.

Where to get free debt help in Australia

Call the National Debt Helpline to speak to a financial counsellor who can assess your options and, if needed, talk to your creditor.

If it's legal - court papers, repossession, a disputed contract - contact your local Community Legal Centre or Legal Aid for free advice. ASIC's Moneysmart site explains how counselling works and links to services in your State.

And if it's involving small business debt, remember a personal guarantee can tie business borrowing to personal assets. Get advice early, especially before you sign anything new.

How to read a debt notice, step by step

Start at the top and work down like you're checking a bill.

• Sender: Is it your lender, a collector acting for them, or a law firm?
• Type of notice: Reminder, formal demand, default notice, or court document (very different stakes).
• Debt details: Account or contract number, what the debt relates to, and whether it's in your name.
• Amount claimed: Is it itemised (principal, interest, fees, legal or enforcement costs) or just a lump sum?
• Dates: When the payment was missed, the date of the notice, and the 'pay by' or 'remedy by' deadline.
• Next steps: What they say they'll do if you don't respond (collections, default listing, repossession, court).
• Contact and response method: Where they want you to reply and whether they include a reference number.

Case study: How a small business debt can threaten the family home

John and Marie ran a suburban e-bike shop. They'd done the hard yards and paid off the family home, the dream scenario.

Then the COVID-era supply mess hit. Stock arrived late, freight costs jumped, demand faltered and cashflow got ugly.

To keep the doors open, they took out a business loan and, like many owners, signed personal guarantees. They didn't fully grasp what that meant at the time. If the business couldn't pay, the debt could follow them home.

When the numbers stopped adding up, attempts to restructure the small business debt were met with talk of bankruptcy and selling the home.

"We were panicked," says Marie. "We wanted to retire in a few years and the thought of starting again was terrifying."

They were referred to Barlow, who says the first step was to slow everything down.

"Once we got the paperwork, we could separate what the lender was saying from what the documents actually allowed," says Barlow.

"We put a workable plan on paper, got the conversations into writing and took the heat out of it, helping protect their home when it came time to negotiate."

If you or someone you know needs support
National Debt Helpline: 1800 007 007
The Small Business Support Line (1800 413 828)

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