A guide to judgment debt options

This guideline is relevant to people who owe an amount of money to a creditor as a result of a judgment made against them by the Magistrates’ Court.

What is a judgment debt?

If you owe someone money, they can apply to the Magistrates’ Court to have an order made that the debt must be paid. Once a judgment has been made against you by a magistrate that you owe an amount of money, interest will accrue at the penalty interest rate on top of the original debt.

The person that you owe money to is called a ‘creditor’. Creditors have 15 years to chase the debt after the magistrate has made a judgment.

What is a summons for oral examination?

A creditor may make an application for you to attend Court for an oral examination. This is a hearing before the Registrar at the Magistrates’ Court to find out about your financial circumstances. You will need to give sworn evidence about your assets, income, debts, expenses and any dependants. You should take any documents that will help you support your case, including bills and a budget outline. If you do not attend, a warrant may be issued for your arrest.

Is there anything I can do to delay the accruing penalty interest rate?

You can try to negotiate with the creditor to delay the penalty interest rate for a few weeks or longer. However, the creditor may refuse to negotiate on this. Any amount that you offer to pay over a set period of time must be seen to be reasonable depending on the amount of the debt and your financial circumstances.

Can I pay off the debt in instalments?

Instalment orders can be made to allow you to pay off the debt at regular intervals. If you receive Centrelink benefits, you cannot be forced to enter into an instalment order, because Centrelink income is protected.

What is the benefit of entering into an instalment order?

If you enter into an instalment order, the creditor can not take assets from you, such as your house or a car worth more than $6100. Entering into an instalment order also means that you are paying off the debt while the penalty interest rate is accruing, which means you will be reducing both the debt and the amount of penalty interest owing.

How can I apply for an instalment order?

You can apply for an instalment order by filling out a Form 28A supplied by the Magistrates’ Court. A creditor who has a judgment order against you can also apply for an instalment order at the Magistrates’ Court.

Can I object to an instalment order?

You or the creditor can object to a decision of the Registrar in relation to an instalment order within 14 days of getting notice of the order.

What if I breach the instalment order?

If you agree to an instalment order, make sure that it is a payment plan that you can afford. If you breach the order, the creditor can bring your matter back to court and can ask for legal costs to be paid on top of the debt and the interest accumulating.

It is important that you stay in regular contact with the creditor so you can, for example, explain why you have missed an instalment or that your financial circumstances have changed. Keep a note of these conversations with the time, date, and who you spoke to. If the creditor refuses to negotiate reasonably and brings the matter to court arguing that you have been difficult to contact, you can show that you have been in contact with them and have explained your financial situation and attempted to negotiate.

What is an attachment of earnings?

This is a court order that allows for your employer to have money taken out of your wages and paid to your creditor until the debt has been paid off.

A maximum of 20% of your pay (after tax) can be taken out under the order. If you are on Centrelink benefits, this is protected income and a creditor cannot seek an attachment of earnings on this income. If you leave your job, or there are other changes in your financial circumstances the court may cancel or change the order.

What is an attachment of debt?

If a creditor knows that someone owes you money they can apply to the court for an order that the person who owes you money must pay that money to the creditor. This will assist in wiping or reducing your debt.

Can I make lump sum payments?

If you receive a lump sum of money that is less than the actual debt, or a friend or family member gives or loans you a lump sum of money, you should try to negotiate with the creditor that by paying the lump sum it will wipe out the rest of the debt. For example, if you owe $5000 and you receive $3000, this might be enough to finalise the debt. It is always worth trying to negotiate with the creditor in this situation.

Warrants

A warrant to seize property allows the sheriff to seize property and sell the goods so that the creditor can be paid the amount you owe them.

The first step is for the sheriff to visit your home and look at what you own. You do not have to let the sheriff in, and the sheriff cannot break in. They can, however, enter through an open window or door. Buildings not attached to your home (such as garages) can be broken into by the sheriff.

After entering your home, the sheriff will list items to be taken. He or she cannot just take anything that will pay off the debt. You are allowed to keep the goods in your house that you need to live in basic comfort. These goods include:

• clothing
• a television and one stereo
• a refrigerator and freezer
• a car worth less than $6100
• beds and bedding
• a clothes drier and washing machine.

The goods removed by the sheriff will be sold at auction or private sale and the proceeds given to the creditor.

A warrant of seizure and sale allows the sheriff to sell your interest in land or any other property on behalf of the creditor. Land can only be taken if the warrant is issued by the County or Supreme Court.

What happens if I want to declare bankruptcy?

If you are declared bankrupt because you are unable to pay your debts, the Bankruptcy Trustee has responsibility for dealing with all monies you owe and any assets you have. The Trustee will determine if your money or assets can be used to pay your outstanding debts. You should get advice from a financial counsellor if you are considering bankruptcy.