On this page:
- Issue court proceedings
- Apply for a Money Order
- Affect your credit rating
- Examine your financial status to seek recovery
- Execution of the Money Order
- Bankruptcy
- Part IX Debt Agreement
1. Issue court proceedings
How?
A creditor may take legal action against you. This can be done in the form of a Claim and Statement of Claim (for debts of $50,000 or less) or a Minor Debt Claim (for debts of $7,500 or less), brought in the Magistrates Court.
A Claim and Statement of Claim/Minor Debt Claim is an application made to the court to obtain a Money Order (a legally enforceable order made by the court) for the sum of the debt, interest and legal costs.
What should I do then?
You have 28 days from the date you received the Claim (not the date written on the Claim) to file a Defence.
- If you received a Claim and Statement of Claim which you wish to defend, you will need to file and serve a Notice of Intention to Defend (Form 6) together with your Defence form (Form 17).
- If you received a Minor Debt Claim which you wish to defend, you will need to file and serve a Notice of Intention to Defend and Defence form (Form 4). You can get these forms from any Magistrates Court.
- If you do not have a defence and accept the claim, then you will not need to file and serve anything.
Entering a defence when you do not have one will only increase legal costs against you.
Seek the assistance of a financial counsellor, or try and negotiate a repayment arrangement. It will be up to the creditor whether a Money Order is obtained against you.
2. Apply for a Money Order
What is a Money Order?
A Money Order is an order of the court stating that you owe the creditor a certain sum of money for their claim (the debt and any interest accrued) and court costs.
When?
If you have not filed a Defence within 28 days from the date you received the claim, the creditor or their solicitor can obtain a Money Order against you.
Do I have to attend court?
You do not need to attend court and nor does the creditor have to notify you about the Money Order.
What happens with interest after the Money Order?
Ongoing interest on the Money Order debt can be added to the amount you owe. This is usually between 6 and 12% per year. Interest can only be added if it is asked for in the creditor’s Statement of Claim or Money Order. If no interest is asked for, then no interest can be claimed.
How long can the Money Order be enforced against me?
Once the Money Order is made, a creditor can start enforcement proceedings at any time in 6 years of that date. If the creditor gets permission from the court, this time can be extended past 6 years.
3. Affect your credit rating
The creditor can affect your credit rating by registering the debt with Baycorp Advantage (previously the Credit Reference Association of Australia).
What is Baycorp Advantage?
Baycorp Advantage (www.creditadvantage.com.au) is an organisation that can give out information about your credit history and ratings to authorised agencies. Money Orders affect your credit rating.
How long can a Money Order affect my credit rating?
Money Orders can be registered with Baycorp Advantage and will remain listed for five years. Money Orders will remain listed even if the debt is paid before the five year period has ended, unless the creditor agrees to have it removed from Baycorp Advantage records once the debt has been repaid.
4. Examine your financial status to seek recovery
When can the creditor do this?
After obtaining a Money Order against you, the creditor can examine your financial position to decide how to recover the debt from you.
How does the creditor do this?
You are summonsed to court by an Enforcement Hearing Summons.
What should I do when I receive an Enforcement Hearing Summons?
If required, file a Statement of Financial Position (Form 71, available from any Magistrates Court), swear to it before a Justice of the Peace and forward it to the Enforcement Creditor within 14 days after service of this summons upon you or before the day set for the enforcement hearing, whichever happens first.
Do I have to attend court?
You will have to personally attend court on a certain date, at a certain time, to provide information and answer questions about your property and other means of paying the debt.
If you filed a Statement of Financial Position (Form 71), the creditor may file and serve a notice on you stating that you are not required to attend the hearing.
Do I have to take anything to court?
Yes, you should take with you all documents that verify your financial circumstances, such as bank books, wage slips, health care card, taxation returns, etc.
What happens at court?
When attending court for an Enforcement Hearing, you will be asked a series of questions either outside the courtroom or under oath before a Magistrate or Registrar. If you are questioned outside you still will be required to swear under oath before the Court that the details you provided are true and correct.
What types of questions will be asked?
The purpose of the examination is for the creditor to obtain all the necessary information to enable them to recover the amount due.
You may be examined as to:
- the other debts you owe;
- your assets;
- the means you may have to repay your debt to the enforcement creditor; and
- any property that you may have sold or got rid of and any other matter specified in the order.
Other questions you may be asked
Before appearing before the Magistrate or Registrar you may be asked to, or may offer to, pay the debt owing by way of instalments. If you reach an agreement to pay by instalments a formal agreement is drawn up. Be careful not to sign anything you are unsure of, particularly in relation to interest components mentioned in the agreement. You should seek legal advice before you sign any agreement (see What can I do once a money order is made again me for details about Instalment Applications).
What if I do not want to answer a question?
The Magistrate or Registrar may punish you for contempt of court if you refuse to swear to the accuracy of your information, refuse to disclose any matters required, or do not answer to their satisfaction.
What if I do not attend court?
You must attend the Enforcement Hearing. If you do not attend, a warrant can be issued giving an enforcement officer of the court the power to locate you and take you to the court (i.e. a form of arrest). The police can be called upon to assist the enforcement officer in locating and apprehending you.
If you, without lawful excuse, refuse or neglect to attend and produce any books, deeds or papers required by the order, then not only can a warrant be issued against you but you can be punished for being in contempt of court. This may include imprisonment.
When brought before a court for failing to attend, the Magistrate will ask you why you should not be punished. You will be required to give your defence for failing to appear before proceeding.
There is no requirement for you to be paid any conduct money, witness expenses or travelling allowance for attending court to comply with the Enforcement Hearing Summons unless the proceedings are being brought in a district other than where you live or carry on your business.
Do I need legal representation at the Enforcement Hearing?
You do not need legal representation at the Enforcement Hearing.
What happens after the Enforcement Hearing?
At the end of any Enforcement Hearing, the Magistrate or Registrar may order you to pay the debt in the time and by installments that they think is appropriate. They may issue an Enforcement Warrant or may “stay” (suspend) the Enforcement Order. You may also be ordered to pay additional costs.
5. Execution of the Money Order
When a Money Order has been issued by the court, the creditor is entitled to recover the debt stated in the Money Order. The creditor can recover the debt in accordance with your ability to pay. As explained earlier, this may be worked out by the creditor at an Enforcement Hearing.
Can part of my wages or other income be taken?
Yes. The creditor may seek an Enforcement Warrant for Redirection of Earnings. This would allow your employer to pay part of your wages directly to the creditor. A warrant can be sought until such time as the total amount specified in the Money Order is paid or the warrant is set aside or expires according to its conditions. (All warrants expire after one year but an application to renew a warrant can be made before it ends).
If you are in receipt of government benefits, these cannot be the subject of an Enforcement Warrant for Redirection of Earnings.
Who can seek an order for the money to be repaid directly from the income source?
Either the enforcement creditor or the enforcement debtor (you) can seek an Enforcement Warrant for Redirection of Earnings. Such an Enforcement Warrant can be sought at an Enforcement Hearing.
What factors are considered in making an order to redirect earnings?
In deciding whether to issue a warrant on redirecting earnings, the court must have regard to the following:
- whether the enforcement debtor (you) is employed and the employer identified;
- whether you have the means to pay off the debt after taking out living expenses for you and your dependants;
- any other known liabilities of the enforcement debtor;
- whether the amount of earnings to be redirected would not impose unreasonable hardship on you; and
- if you are the applicant for this warrant, whether the issue of the warrant would be consistent with public interest of enforcing orders efficiently and expeditiously having regard to the availability of other enforcement means. This means that if you have an asset that could be seized which would resolve the debt immediately, then an application to pay the debt off over a period of time may not be successful.
Under an Enforcement Warrant for Seizure and Sale of Property, an enforcement officer (usually from the court) can be ordered to seize and sell your assets to satisfy the Money Order debt. Generally personal items, standard furniture, tools of trade and often motor vehicles of limited value will not be taken. Caravans, boats, additional motor vehicles you may own, antiques and the like will be taken if they are not already encumbered i.e. if there is no other debt (a loan) attached to them owed to another creditor. Only property that could be taken under the rules of bankruptcy can be taken.
What about my house?
The debtor’s principal place of residence can only be sold if all other property liable to be sold under the warrant has been sold, or all other property liable to be sold under the warrant is unlikely to be sufficient to satisfy the debt, or you request it be sold first.
The enforcement officer cannot sell any property seized if you pay the amount owing, including interest, costs of enforcement then known to the officer and an amount set by the officer as security for the creditors’ other costs of enforcement at or before the sale.
Can an order be made directing someone who owes me money to pay the creditor directly?
Yes, by way of an Enforcement Warrant for Redirection of Debts.
This enforcement procedure would be used to take money from a financial institution that regularly receives periodic deposits into an account in the debtor’s name from another person.
Once again though, any monies received from Commonwealth Government Benefits are excluded.
What other orders can the creditor seek or the court make?
A Warrant for Payment of Order Debt by Instalments can also be sought. Similar considerations to those discussed earlier in relation to redirecting wages apply.
6. Bankruptcy
Another option available to the creditor, if the debt is greater than $2,000, is to have you declared bankrupt. You could also elect to voluntarily declare yourself bankrupt before the creditor applies for bankruptcy.
Is the creditor likely to seek bankruptcy against me?
If you do not have assets or a regular income, a creditor would not usually seek bankruptcy against you. The only outcome for a creditor in this situation would be the satisfaction of having you declared bankrupt.
If you are employed or have some assets, the creditor may seek bankruptcy. A trustee would be appointed to manage your financial affairs. You would also be limited in obtaining further credit, increasing your debts, and may be restricted in travelling overseas.
Where can I find out more about bankruptcy?
The Insolvency and Trustee Service of Australia (ITSA) provides services to assist you in considering or seeking bankruptcy (including a helpful information brochure), even if the creditor applies for a bankruptcy against you.
It is best to seek legal advice before declaring yourself bankrupt as some debts may not be part of the bankruptcy.
When declared bankrupt you lose the right to obtain credit for three years. However, the implications of being a bankrupt can continue throughout your lifetime. You may be refused future home loans due to being previously bankrupt.
7. Part IX Debt Agreement
An option available as an alternative to Bankruptcy is a debt agreement under Part IX of the Bankruptcy Act. This is where an arrangement is reached with creditors to pay off debts by an instalment plan.
It is best to seek independent advice regarding a debt agreement. A Financial Counsellor can provide information and assist with the setting up of the debt agreement. You should not have to pay any set up costs for the debt agreement.
A debt agreement is an act of Bankruptcy.
Debt Agreements are listed on your credit file. Credit files are held by credit reporting agencies (eg Baycorp Advantage Pty Ltd). Information on your credit file is given to lenders (banks, building societies, etc) when you apply for loan. A listing on your credit file makes it very difficult to get a loan.