What a debt is and what happens if you can’t pay your debts and they are overdue.

When a debt becomes overdue

A debt is when you owe money. It could be for products and services that you have bought but not paid for, including overdue bills or personal loans from a bank or finance company. You are known as a debtor or borrower and the person you owe money to is called a creditor or lender.

If you have an overdue debt and do nothing, a lender may:

  • take enforcement action against you in the courts to recover their debt
  • use a debt collection agency
  • repossess any items that you’ve listed as security for the debt, if the credit contract allows this
  • report the debt, which would adversely affect your credit history
  • exercise any rights to recover the debt from a guarantor.

Before you buy products or services on credit or take out a personal loan, find out what will happen if you can't pay. Different unexpected life events such as accidents, illness or losing your job could mean you don't have as much money as you expected. Compare different companies' debt policy and choose the one that's best for you. Your contract with your creditor will include what will happen if you don’t pay.

Read Before you borrow money to find out more.

Checklist for dealing with debt

  • Get free confidential help and advice from a budget adviser from the New Zealand Federation of Family Budgeting Services(external link)
  • Read The Code of Responsible Borrowing(external link) (PDF 117 KB) before you take out a loan or borrow money.
  • Prepare a budget and stick to it. Check out Sorted(external link) for their guides to money matters.
  • Check to see if the debt is legally enforceable.
  • Check your credit record is accurate.
  • Try to renegotiate payments with creditors.
  • Consolidate all your debts into a personal loan.
  • Reduce your credit card limits and pay more than the minimum on your monthly credit card payments.
  • Check to see whether you can get any financial assistance from Work and Income.
  • Get legal advice when you can’t pay your debts and find out how to clear your name.

Know your rights

If you fail to make payments owing, you have an overdue debt and a lender will take steps to recover their money. A lender might:

  • use a debt collection agency to recover the debt
  • sell the debt to the debt collection agency who becomes the creditor
  • take you to court to recover the debt plus costs incurred or use other enforcement methods available through the courts
  • repossess products you bought on credit (formerly called hire purchase) or listed as security under a loan contract (secured loans).

You still have rights even if you can’t pay your debts. Get advice early to deal with the debt.

Contact any creditors you owe money to early to try to sort out a payment plan before matters get out of hand. You may be able to change to your loan under the Credit Contracts and Consumer Finance Act.

If you dispute the debt, you should tell the lender or debt collection agency quickly and give your reasons why not.

A lender has six years to seek debt recovery. If you acknowledge the debt or you make a part-payment, the six-year period starts from the date of the acknowledgement or the date of the last part-payment, whichever is the later.

Read Loan repayment issues and hardship to find out more.

Your credit history

Credit reporting agencies collect and sell information about your credit history. They don’t need your consent to disclose reports to debt collectors and creditors involved in court proceedings against you or to certain government agencies. It’s important to check your credit record is accurate. You can ask for a free copy any time. If it isn’t correct, apply in writing to the credit reporting agency to have the information corrected. There are three credit reporting agencies in New Zealand.

Read Your credit record to find out more.

Debt collection

A debt collection agency will send or present you with a notice asking for the debt to be paid. They may also advise you that you can negotiate an agreed method of payment and that if you don’t pay, you’ll get a bad credit rating and they will take court action.

Read Debt collection to find out more.

Debt recovery through the Disputes Tribunal or the District Court

A creditor or debt collection agency can make a claim to recover the debt:

  • in the Disputes Tribunal if the debt is less than $15,000 (or $20,000 if both parties agree)
  • in the Tenancy Tribunal if the debt is related to tenancy issues
  • in the District Court if the debt is $200,000 or less
  • in the High Court for any amount, but usually over $200,000.

If a creditor makes a claim to the District Court for a disputed debt under $15,000, you can ask the court to transfer this claim to the Disputes Tribunal.

In the District Court, after a claim has been filed, you may dispute the debt and file a statement of defence. If you don’t settle the claim during the case management process, it will go to trial before a judge. The debt collection process for people making and responding to claims in the Disputes Tribunal or District Court is straightforward. The judge might issue an order of payment for the debtor to pay the lender with a date for payment and terms of payment, eg by instalments.

Read Civil debt(external link) on the Ministry of Justice’s website to find out more.


Only products secured under a consumer credit contract or specifically listed as security under a loan contract may be repossessed and your credit contract expressly allows for this. You must also be in default, which means you’ve failed to make payments or you’ve breached the credit contract in some way or the products are at risk (the lender has reasonable grounds to believe the items will be destroyed, damaged or removed).

Read Repossession to find out more.

You have different options with overdue debt. You can dispute the debt or try to negotiate with the lender to make repayments over a longer period.

If there is no way that you can pay your debts, you may be able to apply for a summary instalment order, a no-asset procedure, or bankruptcy.

Read Managing bad debt and insolvency.

Contact the creditor or debt collection agency

If you don’t agree with the debt owed and your reason is that you don’t owe the debt (wrong person) or you think the debt is less than that being claimed, contact the debt collector or creditor. They may decide not to pursue you while the dispute is being sorted out.

You can also apply for a hardship application where the lender can agree to:

  • reduce the amount you pay by spreading payments over a longer period
  • take a payment holiday until a future date when you can start paying again.

See also:

Next steps

If you are unable to resolve your issue directly with the creditor or debt collection agency, the Disputes Tribunal or District Court could be your next step.

Need more help?

Contact us for more guidance.

If you are in financial difficulty, the Insolvency and Trustee Service(external link) and Federation of Family Budgeting Services(external link) may also be able to help.

Common situations

Get help early

Ollie is having trouble paying his monthly power and phone bills since he had to pay for his car repairs. He gets several overdue account notices from the power and phone company. He decides to get advice from his local budget advisory service and they help him to negotiate a payment plan with both companies and to stick to a tight budget to reduce his debts.