A Guide to Dealing with Judgement Debt

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1 A Guide to Dealing with Judgement Debt This factsheet explains your legal rights and options and contains contact details for organisations that may be able to help you. This fact sheet has been prepared as a guide only and is not to be used as a substitute for legal advice. As with any matter concerning a legal issue, you should seek independent legal advice. The information contained in this sheet is current as at February This fact sheet is aimed at people who may be facing a judgement debt and will answer the following questions: What is a judgement debt? How should I respond to a judgement debt application? What happens after a judgement debt order has been made against me? Can I appeal a judgement debt order? Can a judgement debt order be enforced? What happens if I fail to pay a debt after an enforcement order has been made? What happens if I want to declare bankruptcy? If, on the other hand, you are not facing a judgement debt but you think that you may not be able to pay your debts when they fall due, see the Managing Debt fact sheet. Judgement Debt If you owe a person or a company ("Creditor") money and fail to repay that money by the agreed due date, the Creditor can apply for a court or tribunal order demanding that you repay your debt. The order made by the court or the tribunal is called a "judgement debt". Which court or tribunal the Creditor will apply to for judgement, will depend on the amount of the debt owed: Judgement Debt An enforceable legal obligation to pay a debt as ordered by a court or tribunal. Court or Tribunal ACT Civil and Administrative Tribunal ( ACAT ) Magistrates Court Supreme Court Dollar Limit debt of $10,000 or less debt of $250,000 or less Any amount of debt, but usually greater than $250,000 1

2 Once a judgement debt is entered on the record of the court or tribunal, a Creditor in the ACT has up to 12 years to collect the judgement debt from you. You should also be aware that you could potentially be liable to pay for the Creditor's legal costs for obtaining the judgement against you (and collecting the judgement debt) which could increase the amount of debt that you actually owe to the Creditor. Responding to a Judgement Debt Application If you are served with a judgement debt application, you should seek legal advice about your rights and obligations immediately. If a Creditor makes a judgement debt application in ACAT, you should complete the Response form that is attached to the judgement debt application, and return it to ACAT within 21 days, if the judgement debt was personally served on you; or 25 days if the judgement debt was posted to you by regular mail. Forms (2) If a Creditor makes a judgement debt application in the Magistrates Court, or the The forms can be Supreme Court in the ACT, you need to complete a Notice of Intention to Respond Form found as Form 2.8 and a Defence Form. You have 28 days after receiving a judgement debt application to and Form 2.9 on the file either one or both of these forms with the respective court that granted the judgement relevant court debt application. websites. If you do not file a defence within the required time, the Creditor may seek a default judgement against you. In completing the Response or the Defence forms, you need to respond to the claims made by the Creditor and support your responses by setting out your side of the story about: why you think you do not owe the debt, or why the amount claimed is incorrect, or if you owe the debt, you should explain why you have not been able to pay the debt back, and what steps you are prepared to commit to so that you can repay the debt. After the forms have been filed at court or with ACAT, you may then be required to attend a hearing at court, or a conference at ACAT. In some cases, a court can make orders without you present, but this must be done with the consent of the Creditor. Judgement Debt Order A Creditor must serve a judgement debt order on you. This includes providing you with information about how the judgement debt order can be enforced against you if you do not comply. A Creditor cannot enforce a judgement debt order until a period of seven business days has passed from the time when the judgement debt order was served upon you. If you are served with a judgement debt order, you should immediately contact the Creditor to discuss repayment options to avoid the matter proceeding to an enforcement hearing. Make sure that you clearly and truthfully explain your situation to the Creditor. For more information on how to talk to Creditors, see the Managing Debt factsheet. 2

3 You may be able to negotiate a lump sum payment which is less than the full amount of the debt in exchange for paying off the debt early. When negotiating, keep in mind that the Creditor will likely only accept a payment that is less than the entire amount, if your reduced offer is reasonable. You may also negotiate a payment instalment plan by agreeing to make regular Instalment payments of an agreed amount until the debt is repaid. It is important to ensure that any One of a number of agreement reached with a Creditor is in writing. successive payments in settlement of a You should also be aware that if you reach a settlement with a Creditor, and then fail to debt make an agreed repayment, the entire debt may become due which can also be enforced against you by the Creditor. The Creditor must apply for an enforcement order before the judgement debt can be formally enforced against you. Can I appeal a judgement debt order? Yes. Judgement debt orders can be appealed. To appeal a judgement debt order, you will need to lodge an application for appeal to the relevant court or ACAT. You should seek legal advice if you are trying to get a judgement debt order overturned. Enforcement of Judgement Debts After obtaining a judgement debt, a Creditor may apply to a court to obtain an "enforcement" order if you fail to pay your debt. Enforcement hearing subpoena If a Creditor has successfully obtained an enforcement order against you, the Creditor may also make an application to obtain permission from a court to serve an "enforcement hearing subpoena" on you. An enforcement hearing subpoena allows a Creditor to obtain detailed information about your financial position. It also means that you can be called before a court to answer questions about your financial situation including sources of income, assets, liabilities, investments, dependents or any other factors that may be relevant to your overall financial position. Subpoena A subpoena is a document that requires its recipient to provide evidence for a case a witness. If you are served with an enforcement hearing subpoena, you should seek legal advice immediately. You will need to give the court a notice that explains your financial position at least eight days before the formal subpoena hearing, which will be conducted by the Registrar of the Court. The Registrar has similar powers to a judge and is allowed to ask you questions, or order you to supply more documents to the court about your financial position. The Registrar can also make other enforcement orders against you, such as the ones discussed below. Seizure and sale order A seizure and sale order allows a Sheriff's Officer to seize your personal belongings and sell them so that the Creditor can be paid the amount owed. The first step is for the Sheriff's Officer to visit your home and review what goods you own. You do not have to let the Sheriff's Officer into your house, and s/he cannot break in. However, s/he still may seize goods that are outside your house. If you do not let the Sheriff's Officer into your house, s/he can apply for an order from a court permitting entrance to your home. If this happens, you may be required to pay the costs associated with obtaining that order. You may also be required to pay for any other costs associated with the seizure and sale of your property. and/or appear in court as 3

4 After entering your home, the Sheriff's Officer will list the items to be taken. The Sheriff's Officer must leave you with enough things to allow you to live in basic comfort. These include kitchen supplies, some household furniture, one television set, white goods, beds and a car (to a value specified by the Bankruptcy Act 1966). Earnings redirection orders An "earnings redirection order", also called an "attachment of earnings", is made by a court directing your employer to pay money from your wages to your Creditor directly, until your debt has been repaid in full. A court will consider your personal circumstances when deciding to make such an order including how much of your pay should be redirected each week. A redirection order cannot reduce your weekly income below $ a week if you have dependents or $ a week if you have no dependents. If you receive Centrelink benefits, an earnings redirection order cannot be made against these payments because they are "protected". However, once the payments reach your bank, they may no longer be protected. If your employment status changes and you are no longer receiving Centrelink benefits, the income you earn from your new job will not be protected. A Creditor may seek a redirection order based on your new income if you fail to repay the debt. A redirection order can also be made on your bank, ordering the bank to redirect money from your account to your Creditor. If someone owes you money, a court can also order that person to pay your Creditor directly (instead of paying you). This is known as an "attachment of debt" order. Instalment orders Attachment of Debt An order to have people who owe you money pay your creditors (rather than you directly). A court may make an order at an enforcement hearing that you pay off the debt in instalments, taking into account your financial situation. If you receive Centrelink benefits as your only source of income, you cannot be forced into an instalment payment order because Centrelink income is protected as explained above. Regardless of which enforcement order the Creditor obtains against you, you can apply to a court to repay a debt by way of instalments. You can also apply to vary your payment arrangement if your financial circumstances change or if you believe the instalment order is too harsh. The Registrar has the power to accept or reject your application. If the Registrar rejects your application, you can appeal the decision. It is important that you are truthful about your financial situation when negotiating or seeking a payment plan because the court has the power to compel you to answer questions and provide proof of your financial position. An instalment order means that a Creditor will not be allowed to seize assets from you. It also allows you to pay off both the debt and any penalty interest simultaneously which means that the total amount of your debt will be reduced with each repayment that you make. However, if you breach an instalment order, a Creditor can take the matter back to court to seek other orders against you as explained above. 4

5 What happens if I fail to pay a debt after an enforcement order has been made? You cannot be arrested for not paying off a debt. However, if you fail to attend court on the day of an enforcement hearing (see above), a court can issue a warrant for your arrest for nonattendance, which means that you can be taken into custody and compelled to appear before the court. If you continue to refuse to repay a debt after a judgement debt has been entered against you, penalty interest may continue to be added to your original debt amount which means that your debt will continue to grow. It is also likely any additional legal costs the Creditor incurs to enforce the judgement order will be added to the debt. Should I declare bankruptcy? If you feel that you are unable to pay your debts, you may declare yourself bankrupt. You may also be declared bankrupt by a court, after an application by a Creditor. A Creditor may only make you bankrupt if you owe debts of $5,000 or more, and have failed to repay those debts. If you are declared bankrupt, a registered Trustee will have responsibility for dealing with all monies you owe and any assets you own. The Trustee will also determine if your assets, including your home, can be used to pay any of your outstanding debts. Filing for bankruptcy can have long-term and serious financial and legal consequences for you and your family. Before you file for bankruptcy, you should seek financial advice from a qualified financial counsellor, as well as legal advice from a debt/credit specialist. Where to get help Care Inc - Financial Counselling Service and the Consumer Law Centre of the ACT Tel: (02) or (Free Helpline) Monday to Friday 9am - 5pm Wednesday after-hours drop-in service 5.30pm 7.30pm Legal Aid ACT Tel: (Free Helpline) Monday to Friday, 8.30am - 5pm 5