The Law Handbook 2024

346 Section 5: Managing your money in letters and notices sent on behalf of video rental stores to customers making demands for the payment of small debts for video rentals – that the video store was entitled to recover an extra $30 (or other amount specified) in solicitor’s costs, in addition to the claimed debt, despite the store having no necessary entitlement to recover such a cost. What do you do when you have received a letter of demand? As a letter of demand is often the last letter a creditor will send you before suing you, it is important that you make yourself aware of your legal rights and clarify whether you actually owe the creditor at all, and whether you owe the amount being demanded. Therefore, you should decide whether you actually owe the creditor. Decide whether you actually owe the creditor In order to do this, it might be necessary to contact the creditor to obtain a copy of any contracts allegedly made between you and the creditor. Make any request for documentation in writing, and keep a copy of your letter. When requesting documentation from the creditor in writing, it is recommended that you include a sentence such as, ‘Please note that in requesting the above documents, I do not acknowledge liability for any agreement, contract or account’. When you receive the contract from the creditor, check it carefully. If you are unsure whether the contract is a valid or enforceable agreement, seek advice from a solicitor or financial counsellor. See Chapter 5.4: Financial counselling services, and Chapter 2.4: Legal services that can help. If you decide you do owe the creditor If you decide that you do owe the creditor, you should do the following things to check that you owe the debt claimed: • Check the amount that the creditor claims is owed. This is especially important in credit pay- ment situations, or where the creditor has been sold (‘assigned’) the right to recover the debt from you by your original creditor. • If you do not agree with the amount being claimed, write to the creditor asking for a detailed statement of individual items, interest (if appropriate), terms, charges, etc. Keep a copy of this letter. • If you then receive a letter of demand from a debt collection agency or the creditor’s solicitors, write to them explaining that a request has been made to the creditor for a more detailed statement, and enclose a copy of that earlier letter. • When you receive the statement, check it carefully. • If there appears to be errors or areas of doubt, write to the creditor requesting either clarification or correction of the statement. • If you have difficulty checking the details of a statement provided by the creditor or if you don’t get a satisfactory response, seek advice from a solicitor or financial counsellor. See Chapter 5.4: Financial counselling services, for details of how to contact a financial counsellor, and Chapter 2.4: Legal services that can help. • Check that the creditor has not run out of time to sue you for the debt (see ‘Statute-barred debts’, below). • Make yourself aware of your rights and options (see ‘Your rights and options’, below). Statute-barred debts Under the Limitation of Actions Act 1958 (Vic) (‘ LOA Act ’), a creditor only gets a limited amount of time to sue a debtor for a ‘simple contract’. Most debts arise from simple contracts. If judgment has not been entered against you in a court, the time limit is six years. If a creditor does not bring court action against you within the relevant time limit, the debt becomes ‘statute barred’ and you have a complete defence to any court action brought against you. Time under the LOA Act starts to run from: • the date you should have made a payment; • the date you last made a payment; or • the date you or your representative acknowledged in writing that you owe the debt. You should start with the most recent of these events and add six years. If the six years has expired, the debt is statute barred. While this does not mean that the creditor cannot ask you to pay the debt, it does mean that if the creditor seeks to sue you in court for payment, you will have a complete defence. Note that in Collection House Ltd v Taylor [2004] VSC 49 a debt collector was held to have engaged in unconscionable conduct in breach of section 7 of the Fair Trading Act 1999 (Vic) (the current equivalent provision of which is section 20 of the Australian Consumer Law) when pursuing a statute-barred debt (see Chapter 7.2: Consumer protection laws, for more