Making a debtor pay

Based on the ACTLAF Factsheet entitled 'A Guide to Dealing with Judgment Debt', as amended by Elizabeth Samra of Consumer Law Centre of the ACT and current to March 2022.

A debtor should be aware that he/she could be liable to pay for the creditor's legal costs for obtaining the judgement and collecting the judgement debt, which could increase the amount of debt that is actually owed.

Judgement Debt Order

A creditor must serve a judgement debt order on the debtor. This includes providing the debtor with information about how the judgement debt order can be enforced if not complied with. A creditor cannot enforce a judgement debt order until after 7 days has passed from the day when the judgement debt order was served (rule 2015(3), CPR).

Therefore, if a debtor is served with a judgement debt order and does not dispute the debt, he/she should immediately contact the creditor to discuss repayment options to avoid the matter proceeding to an enforcement hearing. The debtor should clearly and truthfully explain their situation to the creditor

The debtor 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 the reduced offer is reasonable.

The debtor may also negotiate a payment instalment plan by agreeing to make regular payments of an agreed amount until the debt is repaid. It is important to ensure that any agreement reached with a creditor is in writing.

The debtor should also be aware that if an agreement is reached with the creditor and subsequently breaches it, then depending on the terms of settlement, the entire debt may become due which can also be enforced against the debtor by the creditor. The creditor must apply for an enforcement order before the judgement debt can be formally enforced.

Enforcement of Judgement Debts

After obtaining a judgement debt, a creditor may apply to a court to obtain an “enforcement” order if the debtor fails to pay.

Enforcement hearing subpoena

If a creditor has successfully obtained judgment against the debtor, the creditor may also make an application to the court to serve an “enforcement hearing subpoena” on the debtor. An enforcement hearing subpoena allows a creditor to obtain detailed information about the debtor’s financial position. It also means that the debtor can be called before a court to answer questions about his/her financial situation including source of income, assets, liabilities, investments, dependents or any other factors that may be relevant to the debtor’s overall financial position.

If the debtor is served with an enforcement hearing subpoena, the debtor should seek legal advice immediately. Service of an enforcement hearing subpoena must take place at least 14 days prior to the allocated hearing date. The debtor will need to give the court a notice that explains his/her financial position at least 8 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 the debtor questions or order the debtor to supply more documents to the court about his/her financial position. The Registrar can also make other enforcement orders against the debtor, such as the ones discussed below.

Seizure and sale order

A seizure and sale order allows an enforcement officer to seize the debtor’s personal belongings and sell them so that the creditor can be paid the amount owed.

The first step is for the enforcement officer to visit the debtor’s home to affect a seizure of, or review the status of, the debtor’s assets. An enforcement officer can seize goods belonging to the debtor personally, but not goods jointly owned.

If the debtor does not let the enforcement officer into the home, the enforcement officer can apply for an order from a court to obtain consent for entry. If this happens, the debtor may be required to pay the costs associated with obtaining that order. The debtor may also be required to pay for any other costs associated with the seizure and sale of property.

The enforcement officer must not take items that are reasonably necessary for the domestic use of the debtor’s household. These include kitchen supplies, some household furniture, one television set, white goods, beds. The enforcement officer must also not seize equipment used for earning income by personal exertion up to a prescribed value.

An order for the seizure and sale can last for one year from the date of issue by the court.

Earnings redirection orders

An “earnings redirection order” is made by a court directing the employer to pay money from the debtor’s wages, until the debt has been repaid in full.

A court will consider the debtor’s personal circumstances when deciding to make such an order including the necessary living expenses of the debtor and how much of the debtor’s pay should be redirected each payday (Court Procedures Rules 2006 reg 2352). A redirection order cannot reduce the total earnings of the debtor to an amount that is less than 80% of the debtor's weekly gross earnings or another period after any required tax deduction (Court Procedures Rules 2006 reg 2353).

A redirection order can also be made on the debtor’s bank, ordering the bank to redirect money from the debtor’s account to the creditor. If someone owes the debtor money, a court can also order that person to pay the creditor directly instead of paying the debtor. This is known as an “debt redirection order”.

Instalment orders

A court may make an order at an enforcement hearing that the debtor pay off the debt in instalments, taking into account the debtor’s financial situation.

Regardless of which enforcement order the creditor obtains against the debtor, the debtor can apply to a court to repay a debt by way of instalments. The debtor can also apply to vary his/her payment arrangement if his/her financial circumstances change or if he/she believes the instalment order is too harsh. The Registrar has the power to accept or reject the application. If the Registrar rejects the application, the debtor can appeal the decision.

An instalment order means that a creditor will not be allowed to seize assets from the debtor. However, if the debtor breaches an instalment order, a creditor can take the matter back to court to seek other orders against the debtor as explained above.

Centrelink payments

An Earnings Redirection Order is generally not available for Centrelink payments unless the Centrelink payment has been paid into the debtor’s bank account. It is therefore possible for a creditor to take payments from the debtor’s account. However, there are rules around what can be taken. If a judgment creditor is trying to garnish a debtor’s bank account and the debtor receives Centrelink benefits, legal advice should be obtained.

Australian Public Servants and Defence Personnel

Section 75 of the Public Service Act 1999 (Cth) and s120B of the Defence Act 1903 (Cth) enables a judgment creditor to satisfy a judgment debt by way of salary deductions from an APS employee without having to commence enforcement proceedings.

What happens if the debtor fails to pay a debt after an enforcement order has been made?

The debtor cannot be arrested for not paying off a debt. However, if the debtor fails to attend court on the day of an enforcement hearing (see above), a court can issue a warrant for his/her arrest for nonattendance, which means that the debtor can be taken into custody and compelled to appear before the court.

If the debtor does not repay a debt after a judgement debt has been entered, penalty interest may continue to be added to the original debt amount which means that the 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.