Last updated 3 August 2016

When a debt has not been paid by the due date, a creditor will generally send the debtor a final notice requiring payment. If payment is not made after that notice is received, the creditor or a debt collection agency may then send a letter of demand stating that legal action will be taken to recover the debt.

Sometimes, letters of demand may be designed to look like court documents. If in doubt as to whether it is a court document or not, a debtor should seek prompt legal advice.

If a letter of demand includes an additional fee or cost, this may not be part of the debt. If in doubt as to whether the fee should be paid, seek legal advice.

On receiving a letter of demand, a person who receives a demand for payment of a debt should:

  • check if the amount the creditor is claiming is accurate or does it need clarification
  • check the age of the debt. There are time limits in which debts may be recovered. If a debt is more than six years old, seek legal advice before confirming the debt or making any payments
  • contact the creditor as soon as they receive a letter or final notice and make arrangements to pay the debt if it is not disputed
  • write to the creditor and/or the debt collection agency requesting a breakdown of the debt, interest, terms and charges if there is any doubt about the details of the debt claimed. Keep a copy of this letter and any other correspondence with the creditor
  • check the statement carefully or seek the advice from a financial counsellor about it
  • write to the creditor and demand a correct statement or clarification, if it was unclear or inaccurate
  • if the debt is disputed, write to the creditor and outline the dispute about the fact that a debt exists or the amount of the debt. Keep a copy of all correspondence with the creditor
  • if agreement is reached that a debt is owed and about the amount of the debt, attempt to make arrangements with the creditor for repayment of all or part of the debt (name the amount to be repaid), by instalments if necessary. A creditor will generally accept a reasonable offer. If a creditor proposes that a new interest rate should be paid along with the repayments, get some legal advice about this.