If your creditor takes the matter of outstanding debt to court, and your defence against the charge is unsuccessful (or if a court order is made against you in your absence), you will be issued with a court order for a “judgment debt”. That means the court makes an order that confirms you are responsible for and must pay the debt. A judgment debt court order can be enforced at any time within 15 years of its date of issue.
You should seek legal advice as soon as possible if you have received court documents for debts.
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Your options when you have a judgment debt
When your creditor has a judgment debt against you, your options are:
- pay the debt. This may mean making a formal agreement with the person to whom you owe the money. Alternatively, you may make an informal agreement with the creditor to pay an agreed amount to discharge the debt. Make sure you have a copy of your agreement in writing and that you have receipts for any amounts paid.
- apply to the court for permission to pay the money by way of instalments if that would be more manageable. Interest charges (at a rate of approximately 11% per year) are added during the payment period.
If you wish to pay your judgment debt by instalments, you will need to complete prescribed forms and prove that your circumstances mean that you are not able to pay straight away, but you will be able to pay off the debt within a reasonable time.
- apply for voluntary bankruptcy. There are many serious implications of being bankrupt, and some benefits. You should seek advice before you take this decision.
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Options for your creditor when you have a judgement debt
When your creditor obtains judgement that you owe the debt, they can take action to recover their money by doing one of the following:
- request that the court makes a ruling on what you should pay in your circumstances following a discussion (referred to as an oral examination) about your financial situation; or
- agree to an instalment order that is manageable in your circumstances; or
- obtain an order for attachment of earnings to take a regular amount from your wages or bank account; or
- obtain a warrant for the seizure and sale of your property; or
- commence proceedings to bankrupt you if the debt is greater than $2000 (either before or after legal costs and penalty interest are added).
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If an attachment of earnings order is made
An order for attachment of earnings (sometimes referred to as a garnishee) is a court order that requires money to be taken from wages (prior to a worker being paid) or a bank account to pay a debt. Such an order cannot be made in respect of any Centrelink payment you receive.
An attachment of earnings can mean a great deal of financial hardship for you and may affect your ability to pay other debts and bills such as your rent.
If having your wages reduced by an attachment of earnings is causing you hardship, you can apply immediately to the court for an order to pay your debt by instalments. With an instalment order, the repayments can be smaller and paid over a longer period and therefore more manageable.
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What a sheriff can do
When you don’t pay a judgment debt according to an agreement reached in court, your creditor may go back to the court and obtain a warrant to seize and sell your property to recover the debt.
Once a warrant has been issued, a sheriff can attend your house and demand payment of the debt or arrange to have your property taken and sold to cover the amount owed and reasonable enforcement costs.
Most sheriffs will allow you a short time to negotiate an agreement with your creditor, if you state you wish to do so. You must be careful to not make an agreement you cannot keep.
The sheriff can only seize and sell property that belongs to you, but cannot sell your basic household items. They cannot take something that belongs to another member of your household, anything rented or hired, or anything that is not fully paid for if it is used as security for the loan used to purchase it.
You can refuse the sheriff entry and they are not permitted to force entry into your house.. They can, however, enter an open or unlocked door without your permission, and force entry into your garage or shed.
More information about what to do when the sheriff contacts you.
If you wish to make a complaint about a sheriff you should complete the sheriff’s feedback brochure.
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When you don’t have to pay a judgment debt
If you have no assets other than normal household items and a car worth less than $6,500 and your only income is a Centrelink payment, you are deemed “judgment proof” under the law. To be judgment proof means that you cannot be forced to pay a debt from your Centrelink income and you have no assets that your creditor can seize. A creditor may still obtain judgment against the debt, but cannot enforce it.
Speak to a financial counsellor if you believe you are judgement proof.