Debt collection and repossession

When you don't repay debt, lenders and other organisations can try to get their money back. How they do this can depend on what it says in your credit contract and whether your debt is secured. The two processes are repossession and debt collection.

• Repossession — taking back a product or item to cover overdue debt. Only secured items written in the credit contract can be repossessed. Usually, the item is what you bought with the loan, e.g. car or TV, but it can be another item if it's listed on the contract.
• Debt collection — the lender or organisation takes extra steps to get their money back, sometimes using a debt collection agency.

Your credit rating will be negatively affected by both these processes.

Repossession agents are different from debt collectors. They need to provide paperwork proving who they are and what they can repossess. If a debt collector tries to repossess items, ask to see their ID and paperwork.

Repossession

If your credit contract lists items as security and your payments are overdue, the lender could try to recover their money by repossessing those items. They cannot repossess items not listed in the credit contract.

The items listed as security might be the item you bought with the credit contract, e.g. a car or TV bought with the loan/credit, or it could be items not connected to the reason for the loan, e.g. jewellery, house, car, savings.

The security items written in the contract must be specific and detailed. For example, if you have two Sony TVs, it's not enough for the contract to just mention a Sony TV. It must specify which one. The items listed as security should not be worth a much larger amount than the loan itself, e.g. using a home as security for a car loan.

Once your item is sold after repossession, it freezes your account. No more interest and fees can be added. If an item is repossessed and sold, but there is still money left owing, this leftover debt could get passed onto a debt collector. For example, you might have $5,000 left on a car loan, but the repossessed car sells for $4,000. You still owe $1,000. The debt collector cannot add extra fees or costs at this point.

If you get behind on your home loan, repossession can result in a mortgagee sale. For information on this process, see:

Repayment problems: Mortgagee sales

Debt collection

If you don't keep up repayments for loans, fines, and other debt, it can be passed onto a debt collector. Debt from loans and credit contracts is covered by the Credit Contracts and Consumer Finance Act (CCCFA).

If your debt is from fines instead of credit, it is not covered by the CCCFA. If you think you have been misled by the debt collector you can report them to the Commerce Commission. If the debt collector behaves in a threatening way, report it to the police. 

Debt collection agencies either:

1. buy your debt, making them the new creditor
2. collect your debt for the original lender.

Your rights are different with these two options. If the debt collector buys the debt, they are now the creditor so must follow the CCCFA and responsible lending code. This includes charging reasonable fees.

Debt collection(external link) — Commerce Commission

No matter which kind of debt you have or the debt collection process, you still have options to repay it:

• Contact the debt collection agency. Try to renegotiate smaller instalments with them, or with the original source of the debt. They do not have to agree, but it is in their interest to help you pay your debt.
• Contact a financial mentor. Talk through your options and make sure the debt is accurate. They can also talk to debt collectors on your behalf and make a complaint to your lender's dispute resolution scheme.

Free confidential advice(external link) — MoneyTalks

What debt collectors can and can't do

Debt collectors should only contact you when they need to, and for a reasonable reason.

A reasonable reason includes:

• asking for payment
• creating or reviewing a repayment plan
• finding out why you haven't followed an agreed repayment plan.

Debt collectors should only visit you if they can't contact you by phone, post, or email, unless you already agreed to in-person visits.

Whether a debt collector has bought your debt or been hired by the lender, or your debt is from fines, there are laws they must follow:

• Do not use physical force, pressure, or unreasonable harassment or hassling when dealing with you or your family.
• Do not enter homes or garages by force.
• Do not try to mislead or deceive you about the debt or threaten court action without a genuine legal reason.
• Do not take advantage of any vulnerability, disability, or other similar circumstances.
• Only tell family, friends, employer, or others about your debt if you give permission, e.g. it was in your contract.
• Give accurate information to credit reporting agencies — providing false information about debt is illegal.

Report any assault or threats of violence to the police.

If you dispute your debt because you don't think it's accurate — or apply for hardship — debt collection and repossession must stop until these issues are resolved. If debt collection or repossession continues during a debt dispute or hardship application, contact your lender/debt collector or your lender's dispute resolution scheme.

Making a complaint about your financial service provider

Fees

Debt collectors can charge collection fees, but:

• You must be told about the fees by the initial lender/store/service provider — this can be in a credit contract, store display, or on the back of a ticket. This rule applies no matter whether your debt is sold to the collector or not.

If you are charged fees you weren't told about beforehand, contact the lender or provider, e.g. local council who issued you the fine.

Debt from fines

Debt from fines is not covered by the CCCFA. If you think a debt collector misled you, you can report them to the Commerce Commission under the Fair Trading Act.

Make a complaint(external link) — Commerce Commission

If the debt collector behaves in a threatening way, report it to the police. For more info on your rights with debt due to fines, talk to a financial mentor.

Free confidential advice(external link) — MoneyTalks

Debt collection process

There is no standard debt collection process. If you get behind in payments, whether your debt is from a loan or fines, the lender or organisation could:

• hire a debt collector
• sell the debt to a debt collector
• repossess items if the debt is secured and items are listed on the contract
• take you to court.

The lender may be able take money from your wages or benefit if this is written in your credit contract. You can cancel this, but you need to have another method of repayment worked out instead.

When you hear from a debt collector, don't ignore it. Contact the debt collector to work out a repayment plan. A free financial mentor can give you advice and talk to the lender or debt collector for you.

If you had items repossessed before debt collection starts, your debt must freeze. Debt collectors cannot add their fees on top of this.

To prove the total amount of your debt after repossession, you can provide the Statement of Account. You will get this from your lender 7 days after the sale of your repossessed item. If you don't remember receiving this, ask your lender for a copy.

Common problems

Make a complaint

If you think your lender or other financial service provider has acted unfairly in any way, then there are options you can take to address your issue. This can include making a formal complaint with your provider or getting help from a financial dispute resolution scheme. 

Making a complaint about your financial service provider