A debt is when you owe money. An overdue debt could include not only where you haven’t made your payments for a personal loan from a bank or loan company, or a hire-purchase debt, but also if, for example, you haven’t paid one of the suppliers for your business or trade.
In this situation the law generally refers to you as the “debtor”, and the person or company to whom you owe the money is the “creditor”.
The creditor may employ a debt collection agency to recover the debt, or may even pass on or sell the debt to a debt collection agency, who then legally becomes the “creditor” for the debt. Alternatively the creditor can take you to court to recover the debt and then use the different enforcement methods available through the courts.
The creditor may also:
You should tell the creditor or debt collection agency as soon as possible that you dispute the debt, and give reasons. Do this in writing, and keep a copy of the letter.
If the debt is $15,000 or less, you can take a claim to the Disputes Tribunal, where you ask them to make an order that you don’t owe the disputed amount (see the chapter “The Disputes Tribunal”). Claims between $15,000 and $20,000 can also be taken to the Tribunal, if both sides agree to dealing with the dispute this way.
All lenders must be registered as financial service providers and be members of an approved dispute-resolution scheme. Therefore if the disputed debt originates with a lender under a credit contract, you can complain to the dispute-resolution scheme the lender belongs to (see “Other legal protections when you get credit” in this chapter).
If you simply do nothing then you’re leaving the creditor to bring enforcement action against you.
If you dispute the debt, the creditor or debt collection agency may decide to:
If you need help, get support from your local budget advice service (see “Other resources” at the end of this chapter).
Credit reporting agencies gather and sell information about individuals’ credit histories. The information they can report on includes your current credit accounts (such as hire-purchase arrangements and loans, and including credit limits and your repayment history), whether you’ve ever failed to make (“defaulted on”) your repayments, any court judgments given against you for debts, and if you’ve ever been declared bankrupt.
People who will want to access this information may include lenders, prospective landlords, employers and insurers, but this requires your consent first. However, credit reporting agencies generally don’t need your consent in order to disclose reports to debt collectors, people involved in court proceedings against you, and certain government agencies.
Credit reporting agencies must take reasonable steps to make sure the information they hold about you is accurate, up-to-date, complete, relevant, and not misleading.
There’s also a time limit on how long they can continue to report on particular things after they happen. For example, after a bankruptcy comes to an end (a “discharge” from bankruptcy), credit reporters can continue to report this for four years, but no longer, and they must not keep the information about the bankruptcy for more than five years after the discharge. The same time limits apply after you’re discharged from the no-asset procedure (see “When you can’t pay your debts: Bankruptcy and other options” in this chapter).
You have the right to ask for a copy of your credit report. If any of the information isn’t correct, you can apply in writing to the credit reporter for it to be corrected.
Three credit reporting companies operate in New Zealand. To check your record or to correct any information you’ll need to contact them all (see “Other resources” at the end of this chapter).
A credit reporting company must give you a copy of your report within 20 working days after you ask for it. They can’t charge you for this, unless you ask for them to provide it within five working days, in which case they can charge you up to $10 (including GST).
A debt collection agency will first send or give you a notice asking for the debt to be paid and telling you that if it isn’t paid you’ll get a bad credit rating and will be taken to court to have the debt enforced.
Debt collectors must not mislead or deceive you by stating that you will definitely be responsible for court costs and legal fees if the matter is taken to court: whether you’ll have to pay those costs and fees will be up to the court to decide.
A debt collection agency can charge fees over and above what you owe, but only if you were told about those fees at the time that you bought the hire-purchase goods or got the loan. The fees must be reasonable.
If you’re not happy about the fees you’ve been charged, you can ask the debt collector to explain them. You can also compare them to what other debt collection agencies charge. If you think the fees aren’t reasonable, you can apply to the Disputes Tribunal and ask it to reduce the fees (see the chapter “The Disputes Tribunal”).
Action can be taken against you to recover a debt in:
Note: If a creditor brings a claim in the District Court for a disputed debt that’s under $15,000, you can ask the court to transfer the case to the Disputes Tribunal. You can do this by filing a notice of application for the transfer at the District Court.
Debts can be recovered through the District Court by filing a statement of claim with the court. This gives details of the creditor’s claim, including the amount of the debt and how it came about. The creditor also serves a copy of the statement of claim on you, the debtor.
If you want to dispute the creditor’s claim, you have 25 working days to file a statement of defence in response, and to serve a copy on the creditor.
If you don’t file a statement of defence, the court will make an order that you owe the money, and the creditor can enforce the order (see below “How court judgments are enforced”).
Note: In July 2014, the process for making and defending a claim in the District Court was changed. The previous procedure involving a “notice of claim” and a defendant’s “response” was abolished.
Your statement of defence must either admit or deny the facts alleged by the creditor in their statement of claim.
The court rules state that if you deny an allegation, you must answer the substance of the allegation and not be evasive about it. For example, if the creditor claims you received an amount of money, you can’t simply deny receiving that particular amount – instead you must deny receiving that amount or any part of it, or you must state how much you did receive. If the statement of claim sets out particular circumstances relevant to the allegation, it’s not enough for you to deny it as alleged with those particular circumstances. In all cases you have to give a fair and substantial answer.
If you don’t deny a particular allegation in your statement of defence, you’re treated as having admitted it.
Your statement of defence must give sufficient details of times, places, amounts, names of people, legal documents, and other facts to allow the court and the creditor to know what your defence is.
Along with their statement of claim the creditor must include a list of all the documents they’ve referred to in the statement of claim and any other documents they’ve used when preparing their statement of claim and that they intend to rely on at the court trial.
You can then ask the creditor for copies of any of the documents in the list, and the creditor has to give you them within five working days.
The same rules apply to you when you file your statement of defence: you must provide the creditor with a list of relevant documents, and the creditor can require you to provide copies of the documents within five working days.
If you intend to dispute the claim and have filed a statement of defence, the case will then go through the District Court’s case-management process. If you and the creditor don’t settle the dispute during the case-management process, the case will go to a trial before a District Court judge. (For information about court processes, see “Other resources” at the end of this chapter.)
Usually a creditor has only six years to recover a debt. This time limit starts as soon as the debt is owed, unless you acknowledge the debt or pay part of it, in which case the time limit starts from the date you acknowledge the debt or the date of the last payment.
If you last made a payment before 2011:
Once a creditor has obtained judgment from the court that you owe a debt, they can apply for an order to enforce the judgment. The different methods of enforcement are explained below.
A financial assessment hearing is often used as a first step to establish a debtor’s financial circumstances and whether they’re able to pay the debt. The court can order the debt to be paid off by instalments or make another kind of enforcement order. (An order to attend a financial assessment hearing used to be called an “order for examination”.)
You can apply to have yourself examined if you’re in a dispute with a creditor about your ability to repay a debt.
An attachment order requires your employer to take money directly from your salary or wages to pay the debt to the creditor. These orders can also be made against your benefit or ACC payments. An attachment order can be made once a financial assessment hearing has been held, and in certain other situations.
The court can issue a warrant authorising a court bailiff to enter premises to seize money or goods belonging to you (other than necessary tools of trade up to $500 and necessary household furniture and effects, including clothing, up to $2,000). The goods may then be sold to pay off the debt. (A warrant to seize property used to be called a “distress warrant”.)
A charging order can stop you from selling the land or property that the order is made over until the creditor has the opportunity to seize or sell the property (or the debt is paid).
If someone else owes you money (including, for example, your bank if you have money in a bank account), the court can make a garnishee order requiring the third party (for example, the bank) to pay the money directly to the creditor.
If the court is satisfied that you can pay the debt but are simply refusing to do so, it can order you to do community work for up to 200 hours. The court can do this once a financial assessment hearing has been held, and in certain other situations. However, in all cases the court must be satisfied that all other enforcement methods are inappropriate or have already been tried unsuccessfully.
There are a number of significant restrictions on lenders taking possession (called “repossession”) of hire-purchase goods or goods listed as security under a loan contract:
Credit Contracts and Consumer Finance Act 2003, s 5 (definition of “repossession”)
Note: The law uses the term “repossession” not just for when hire-purchase goods are taken off you but also when a lender takes possession of property that you (or a guarantor) have put up as security for the credit. In other words, “repossession” is used – and the repossession restrictions will apply – even if the lender never previously had possession of the goods.
Goods can only be repossessed from you if your credit contract explicitly allows this. The repossession rules in the Credit Contracts and Consumer Finance Act don’t give a lender any repossession rights they wouldn’t otherwise have – the Act merely says how the lender can exercise any repossession rights that are in the contract.
Assuming the credit contract does allow repossession, the lender can repossess goods only if:
A lender also can’t repossess property from you if:
Your property can also be repossessed if you provided it as security to guarantee someone else’s loan, and the borrower hasn’t been doing everything their loan contract requires (see “Guarantors” in this chapter).
(For information about hire purchase (“credit sales”) and about security for loans and other credit, see “Credit contract: Hire purchases, loans and other credit” in this chapter.)
Note: There are certain types of consumer goods – stoves and fridges for example – that can’t be used as security for a loan and that therefore can’t be repossessed if you miss your payments (see “What is a secured loan?” in this chapter). However, that restriction doesn’t apply when one of those items is bought on hire purchase and the security is part of the HP arrangement, or if a bank or other lender loans you money specifically so you can buy the item (those types of securities are called “purchase money security interests”).
During any repossession process, the lender must treat you and your property reasonably and ethically (including property that you don’t own but that’s in your possession, like hire-purchase goods). They must take all reasonable steps to make sure that nothing is damaged, that repossessed items are adequately stored and protected, and that they don’t enter your home in an unreasonable way.
Lenders also have a general duty whenever they’re dealing with you to exercise the care, diligence and skill of a responsible lender.
The Credit Contracts and Consumer Finance Act sets out a process that the lender and repossession agents must follow when taking property from you – there are specific rules dealing with what has to happen before, during and after the repossession.
Before they can repossess goods from you on the grounds that you’ve defaulted under your contract, the lender must send you (and any guarantor) a repossession warning notice, at least 15 days before they repossess (these used to be called “pre-possession notices”).
The warning notice must include a range of information, including what the default is (that is, how much you’re behind in your payments, or in what other way you’re breaching the contract). If the default can be put right – for example, by getting your payments up to date – the notice must set a time limit for you to do this. That time must be at least 15 days after you receive the notice. After that time the lender can repossess the goods.
The warning notice must be hand-delivered to you, or left at or mailed to your home or work or another address you’ve given the lender for this purpose. The notice can’t simply be emailed to you. The notice can be sent to your last-known address if you’ve moved and haven’t told the lender your new address.
Repossession warning notices don’t stay valid indefinitely: they expire after 60 days, so that if the lender hasn’t repossessed within that time they’ll need to send you another warning notice giving you at least another 15 days before they can repossess.
If you’ve received a warning notice, you have the option of voluntarily delivering the goods to the lender to the place specified in the notice.
Note: The lender doesn’t have to send you a warning notice before repossessing goods if they have reasonable grounds to believe the goods are “at risk” – that is, that the goods have been or will be destroyed, damaged or removed.
If you don’t pay what is owing or otherwise remedy the breach of the credit contract within the time specified in the repossession warning notice (which must be at least 15 days), the goods can be repossessed. However, the lender or their agent can only enter your property to take the goods if this is allowed under the credit contract or if you allow them to enter.
The repossession must be carried out in a reasonable way, and the lender (and their agents) must comply with the following specific requirements:
If you pay what’s owing on the spot, you can stop the goods being taken away. However, you’ll also have to pay the reasonable costs of the repossession.
Repossessing things attached to other items – There are specific rules that apply to repossessing goods (called “accessions”) that are installed in or attached to other consumer goods – for example, a car stereo or a replacement car engine. In these cases the lender or agent must remove the accession in a way that causes the least amount of damage to the item it’s attached to (your car for instance) and the least inconvenience to you as the owner of the other item.
Within 14 days after the repossession, the lender must send you and any guarantor a second notice, called a “post-repossession notice”, that gives you 15 days to do one of the following things:
Note: A budget advisor may be able to help you decide which of those three options is best (see “Other resources” at the end of this chapter).
If you don’t take any action within the 15 days, the lender must offer the goods for sale. The lender can’t sell, or offer to sell, the goods before the 15 days are up.
You can reinstate or settle the agreement at any time before the lender sells, or agrees to sell, the goods.
If the lender doesn’t give you a post-repossession notice after repossessing, they can’t sell the goods or exercise any of their other rights in relation to the goods, and they also have to bear their repossession costs.
If the lender sells the goods, they must take reasonable care to obtain the best price that’s reasonably obtainable at the time. All other aspects of the sale, including the method, time and place, must also be commercially reasonable.
The lender must give you and any guarantor reasonable notice before the proposed sale. If the sale is to be by auction or tender, then you, the lender and any guarantor are all entitled to bid or submit tenders.
You can force the lender to put the goods up for auction if the goods haven’t been sold within 30 working days after being repossessed.
Within seven days after selling the goods the lender must give you and any guarantor a “statement of account” that tells you:
If you still owe money to the lender you’ll have to negotiate with them about how this will be paid. The lender can’t claim anything other than what’s left owing after the sale (that means the lender can’t claim any ongoing interest or costs).
If the repossession process isn’t followed properly, you can take the lender to the Disputes Tribunal or to the courts. They can make a range of orders against the lender, including: ordering them to pay you compensation for property damage, for financial loss, or for stress, humiliation or inconvenience; or ordering changes to the terms of the credit contract. Even if you haven’t been caused any loss or damage, the lender or their repossession agent may have to pay you up to $6,000 in “statutory damages” for breaching the repossession rules.
Some credit contracts allow the lender to attach a disabling device to goods that are subject to a security interest under the contract, so that the lender can then disable the goods remotely if the borrower gets behind on their payments – for example, a starter interrupt device with a GPS locator that’s attached to a car bought on hire purchase.
However, lenders can’t attach disabling devices to the following types of goods: beds and bedding, stoves and other cooking equipment, medical equipment, portable heaters, washing machines and fridges.
A lender can’t activate a disabling device unless: