Before bankruptcy bites, you'll have been dealing with debt collectors - in one form or another. It's important to know your rights and obligations here too.

Collection fees and interest

Retailers or debt collectors can add interest or fees to an overdue debt if they made the potential for these charges clear when you made the purchase or order. Some supermarkets stamp the back of cheques, for example, saying you'll have to pay collection fees if your cheque bounces.

The charges can bite. One person paying an overdue $945 in small instalments was charged an additional $367, over 30 percent on top of the original bill.

If you weren't warned of interest or overdue payment fees when you made the deal, these can't be added without breaching the Fair Trading Act.

Some collection companies including Baycorp add their own "optional" fees. You're not legally bound to pay these if you weren't warned about them in advance.

But if you're taken to court, the judge can order you to pay additional costs.

Repo men and wheel clampers

Get behind with payments on a secured loan or hire purchase agreement, and the item can be repossessed.

Your car, boat, jewellery or even real estate could be seized against an overdue court fine or reparation order.

In some areas, if you ignore a reminder letter from your district court, your car may be clamped. Pay up and the clamp is taken off.

Debts can't haunt you forever

The Limitation Act 1950 (sometimes called "the statute of limitations") says debts older than 6 years can't be enforced in court, with two main exceptions: if a court orders you to pay, or you've paid a portion of the debt.

The 6-year liability begins again from when you make a part-payment. If an old debt appears which isn't yours, or you're certain you paid it, don't even pay a portion.

Of course, we think you should pay bills you genuinely owe.

If it's not your debt

Some unscrupulous debt collectors send threatening letters to addresses plucked from the phone book for people with the same name as the debtor, hoping one of them will pay up.

If you get one of these letters, don't ignore it - it could cause problems. Write to the company explaining that the debt isn't yours, and keep a copy of your letter.

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