A debt is created when one person owes money to another. The person who owes money is called a debtor; the person to whom money is owed is called a creditor. There are many ways of getting into debt. For example:

  • borrowing money to buy goods or services;
  • buying goods and services on credit;
  • overdue utility accounts;
  • fees owed to a doctor or medical service.

A debt becomes a problem when it is not repaid as required by the loan or credit agreement. The most common reasons are:

  • goods bought on credit were defective so the debtor refused to pay for them;
  • the debtor bought too many goods on credit or borrowed money which the debtor could not afford to repay (that is, an over commitment); and
  • the debtor became over committed  due to a later change in circumstances, such as unemployment.

A debt is a liquidated amount (that is, a certain or ascertainable amount) of money owing by the debtor to the creditor. This does not mean that before a debt can be said to be owing, the debtor and creditor must each agree upon a fixed or specific amount. It is sufficient that the amount of money owing by the debtor to the creditor can be stated precisely and objectively. Two examples follow:

  • A asks B to build a staircase in A’s house and B agrees to do so for $500. There has been express agreement on the amount of money B is to be paid and the debt or liquidated amount owing by A to B is clearly $500.
  • Alternatively, take the situation where A asks B to build a staircase in A’s house and does not discuss with B the price to be charged when the work is completed. Unlike the first example, no fixed price has been agreed upon. Nevertheless, a court would say that it was implied in the agreement between A and B that A would pay B a price which was reasonable in the circumstances. Thus, if B completed the staircase and set a price of $520 for his work and that price was reasonable, then there would be a debt, or a liquidated amount, of $520 owing by A to B.


A person may agree to buy or may actually buy goods that he or she cannot afford or may borrow money he or she cannot afford to repay. Sometimes, for example if the goods were bought from a door-to-door salesman, the person may have a right to get out of the contract Under the ACL, a customer has the right to terminate an unsolicited agreement within 10 days (see Part 3-2, Division 2 of the Australian Consumer Law (ACL), in particular s82).

Negotiating repayment terms

Creditors, such as businesses or banks, are often open to negotiating a repayment schedule on a debt. It is best to ask a creditor for this option before the issue becomes so large that court or debt collection intervention is sought.

Temporary Assistance to Debtors

Any debtor who has some temporary inability to pay debts should contact his or her creditors as soon as possible and ask for an extension of time to pay. It is in the interest of the creditor to ensure that a debtor is able to maintain payments over the longer term, and most reputable credit providers will assist with a genuine problem.

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