Credit and Debt

Credit and Debt

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The creditor's options

The creditor's options

In the event that a judgment has been entered and the debt remains unpaid, the creditor has the right to enforce payment of the debt. The court will only enforce the judgment if the creditor applies for enforcement.  The most common forms of enforcement include:

  • attachment of debt;
  • attachment of earnings order;
  • instalment order;
  • summons for oral examination;
  • warrant to seize property; and
  • application for a petition for the debtor's bankruptcy (creditors are more likely to take this option of they think that the client has valuable things or that he or she is avoiding a debt they can pay - refer to Bankruptcy).

All methods of enforcement attract court fees, which can be added to the debt and are recoverable from the debtor.

Summons for oral examination

A summons for oral examination is a court document requiring your client to attend court on a specific date to answer questions (on oath) about his or her financial circumstances (including his or her income, expenses, assets and liabilities).

The creditor will use this information to work out how to proceed with recovering the debt. 

If the client does not attend court at the time specified, a warrant may be issued for their arrest.   The client is entitled to a small sum of money to help with the cost of getting to court.

The client should take any documents named on the summons (for example, bank books, bills and pay slips), as well as any evidence that might help their situation, for example doctor's reports.

The examination usually happens in an office, not in open court.  Both the court registrar and the creditor's representative may ask the client questions about his or her financial circumstances. 

Victoria Legal Aid has helpful information on its website  which sets out the questions your client should be prepared to answer at the oral examination. 

If a statement of finances shows that your client does not have any capacity to repay the debt, the client should not be pressured into offering to make payments they cannot afford. 

Any offers to pay must be realistic - it is not necessary to make an offer to pay if this is not possible. 

Instalment order

An instalment order is a court order that requires a person to pay their debt by instalments.  Importantly for many of our clients, if a person's only source of income is a Centrelink benefit, they cannot be forced to pay an instalment order because this is a protected source of income under section 12 of the Judgment Debt Recovery Act.

Either your client (as the debtor - see your client's options) or the creditor can apply to the court for an instalment order. 

Creditor applications for instalment orders can be made if the creditor has obtained judgment against your client and the creditor is of the view that payment over time is better than no payment or ad hoc payment.  The creditor will need to file and serve a copy of an instalment order application (Magistrates' Court of Victoria Form 61A).

If the creditor applies for an instalment order, they will add the legal costs of this process to the debt. 

Once the instalment order application is filed with the court, the registrar will consider the application and advise the parties of the outcome in writing.

If either party has an objection to the registrar's decision, they may file a Notice of Objection (Magistrates' Court of Victoria Form 61D) within 14 days. The matter will be referred to a Magistrate in open court for review.

The objection will be scheduled for hearing at which the court may agree with, change or cancel the order.  You should prepare information about your client's income, expenses and hardship to take to this hearing.

If the Court grants an instalment order and your client is complying with it, the creditor cannot take any further action. 

The creditor can apply for the order to be changed or cancelled if:

  • there is a substantial improvement in your client's ability to pay; or
  • it can be proved that your client gave inaccurate information to the court.

If your client is on a payment plan that he or she cannot sustain, they will most likely end up back in court for default.  At this hearing, the court will decide whether to uphold, change or cancel the instalment order. 

It is extremely unlikely that your client will go to jail for failure to pay a debt.  However, the court can order this if the client persistently and wilfully defaults on an instalment order without reasonable excuse (when they have the capacity to make the payments). 

Attachment orders

The court can make orders that money owed to your client by a third party is payable to the creditor:

  • Attachment of Earnings Order - a court order directing the client's employer to pay an amount of their wages to the creditor. If your client's only income is a Centrelink benefit, the court cannot make an Attachment of Earnings Order unless your client agrees to it; or
  • Attachment of Debt Order - a court order that a third party who owes the client money has to pay that money directly to the creditor.

More information in relation to attachment orders is available on the Magistrates’ Court of Victoria website at Attachment of Earnings Orders and Attachment of Debt Orders.  Because our clients' incomes are more often than not limited to Centrelink benefits, these orders will often not be appropriate for our clients.  

Warrant to seize property

According to the Magistrates' Court of Victoria website, this is the most commonly used enforcement procedure.

The creditor must apply to the Magistrates' Court for the issue of a Warrant to Seize Property (using Form 68A).

The court can then make an order authorising the sheriff to take and sell assets to repay a creditor.

The sheriff is directed by the warrant document to attend the client's premises where he or she has assets.  If payment is not made, the sheriff can seize assets (not ordinary household items or other items listed below) belonging to the debtor sufficient to satisfy the debt.

If a client comes to you once they have received a warrant for seizure of their goods, their options include:

  • repaying the money owing;
  • negotiating with the creditor about payment of the debt (also call or write to the sheriff to inform them that you are attempting to negotiate with the creditor, explain your client's hardship and request that they postpone the seizure while these negotiations are on foot);
  • applying for an instalment order (refer to your client's options); or
  • obtaining the sheriff's permission to try to find a private buyer for the goods (the client may get a better price for the goods this way).

The Department of Justice brochure, What happens when the sheriff contacts you’  contains contact details for Victorian sheriffs' offices. 

If the above methods are not successful (or you do not have a chance to implement them), you should provide your client with the following advice about the execution of warrants for seizure of their goods:

  • the client does not have to let the sheriff into their house, but the sheriff can enter through an open window or door, or by using reasonable force if they have first asked permission to enter and permission has been refused without good reason (or if they cannot locate the client) (section 22 of the Sheriff Act 2009 (Vic));
  • the sheriff can only enter a residential property between 9:00am and 5:00pm;
  • once the sheriff has entered a premises, the client cannot make him/her leave;
  • the sheriff will list items to be taken and give the client a copy of the list. The goods will usually be left with the client until the sheriff comes to collect them. Once the sheriff has listed the goods, the client must not sell or get rid of them. If your client does not own goods on the list, you should write to the sheriff immediately, enclosing proof of ownership such as photocopies of receipts; and
  • the confiscated goods will be sold (unless an arrangement can be negotiated first) and the sheriff will take out costs, such as removal, storage and auction fees, from the sale price and then pay the creditor. Any money left over will be given to the client. The sheriff can also ask for the costs of entering the property, for example, if the client refuses entry and a locksmith is called.

Importantly for our client group, goods needed by a household to live in basic comfort cannot be confiscated or sold.  Generally, these include (under section 116 of the Bankruptcy Act 1966 (Cth) and regulation 6.03 of the Bankruptcy Regulations 1996 (Cth)):

  • a washing machine and clothes drier;
  • a refrigerator and freezer;
  • kitchen equipment, dining table and chairs;
  • a lounge suite;
  • one television, one set of stereo equipment and a video recorder or DVD player;
  • sufficient beds and bedding;
  • clothing;
  • tools of trade to the value of $3700;*
  • a car or other vehicle which is used primarily as a means of transport, if it is registered and valued at less than $7600;* and
  • educational, sporting or recreational items, for example, books and computers used by children of the household.

Examples of what the sheriff can take include:

  • money and bank notes;
  • jewellery;
  • unregistered vehicles; and
  • second vehicles or vehicles valued at more than $7600*.

* These amounts are indexed to inflation and change from time to time - updated figures are available on the Australian Financial Security Authority website.