Australian Civil Liberties Union
Your Rights 2005
DEBTS, CREDIT, BANKRUPTCY, AND FINANCIAL COUNSELLING
Obtaining credit. Instalment payments. Credit contracts. Unemployment insurance. Court proceedings. Attachment of wages. Seizure of goods. Bankruptcy.
This chapter should be read in conjunction with Chapter 3 – Rights of Consumers. Chapter 3 gives advice on the dangers of over committing yourself through obtaining goods and services on credit, the need to read written contracts carefully, legislative protection for used car buyers, the danger of deceptive advertising, and the possibility of taking disputes to Claims Tribunals.
Be careful not to incur debts you are unlikely to be able to repay. Bankruptcies resulting from over commitment on personal loans are at a record level. Many T.V. ads urge people to use credit facilities (i.e. go into debt) but do not warn people of the dangers of over commitment. Credit providers often provide credit with high interest rates to people who cannot afford the repayments, or are likely to soon be in a position where they are unable to make repayments.The most common way people incur debts is buying goods and services (on credit) which they cannot afford and often don’t really need.There is a lot of pressure on people to live well, impress the neighbours and friends, and obtain and use credit. The do’s and don’ts of buying on credit are set out in Chapter 3.
Options. Debtors should be aware of all possible options open to them.The debtor or his counsellor should prepare an assessment of assets and liabilities.The option chosen by the debtor will depend on the balance sheet of liabilities and assets, the value of the goods in question, whether non-payment of debts could affect the debtors employment, whether people who have guaranteed debts could have their property seized and whether defences are open to the debtor in Court proceedings. Options open to the debtor have advantages and disadvantages and the debtor should weigh these up before deciding on a course of action.
If debts are secured (e.g. by hire purchase agreement) the goods may be seized by the creditors (people or firms to whom you owe money) after appropriate notice is given. If debts are not secured (e.g. goods bought on credit card) the debtor has several options some of which also apply to secured debts.These include arrangements to pay the debts, declining to pay the debts, offering to pay less than the amount outstanding to finalize the debts, arranging to consolidate all debts, negotiating to pay the debts by instalment payments, asking the creditors to forego or write off their claim for the debts, and applying to a Court for the right to pay by instalments after judgement has been entered.
A debtor may also request a delay or moratorium in making payments, consider filing a bankruptcy petition, apply for a variation of a credit contract, and seek payment of the debt by an insurance company if a policy was taken out to cover incapacity to pay due to illness or unemployment.
What a debtor does in a particular case will depend on the facts of that particular case, and the relevant law applying in the State where the debt was incurred. Although Federal laws (e.g. Bankruptcy) apply in all States, there are differences in State laws (e.g. for varying credit contracts and obtaining instalment orders). Some options will not be open to a debtor. For instance a debtor may have no funds to pay the debt, or may not be able to apply for an instalment order because judgement has not been entered.
Whether it is better for the debtor, or a financial counsellor on his behalf, to negotiate with a creditor will again depend on the facts of the particular case.
Credit Contracts. You may be able to obtain an amendment of the terms of a credit contract by negotiating with the credit provider, approaching the Ministry of Consumer Affairs, or taking your case to a Claims Tribunal. The Claims Tribunal may amend the contract, make an order for the delivery of goods and relieve you of a debt. Contact the Minister of Consumer Affairs in your State (see Chapter 1) to ascertain whether your credit contract can be amended by a Tribunal.
Insurance Contracts. If you are unable to continue making instalment payments to creditors you should consult a financial counsellor or contact the creditors. If you cannot make payments because of illness or unemployment, payments may be payable by an insurance company under an insurance policy if you took one out at the time you obtained credit to purchase the goods. Many credit insurance policies are very expensive and have so many exclusion clauses that they are often of little help to a purchaser who cannot meet his commitments. Any consumer should read contracts for the purchase of goods and contracts for credit insurance carefully and should consider choosing his own insurance company rather than one nominated by (and often a subsidiary of) the trader.
Financial Counsellors can give you advice and negotiate with the creditors on your behalf. Creditors may accept a temporary postponement of payments, accept reduced payments, or accept a consolidation of debts. You or your financial counsellor should contact your creditors at an early stage, even before receiving a “letter of demand” requesting payments be brought up to date, to show that you are making a genuine effort to pay your debts. This may help to prevent legal proceedings. Most creditors are prepared to allow debtors more time to pay debts provided they feel they will recover the debt in due course. Legal Aid Commissions, Citizens Advice Bureaus and social workers can advise you how to contact a financial counsellor.
Debt Consolidation is an option which involves borrowing money to pay out existing debts, and making regular payments to the lender. This has the advantage of making one payment to one creditor instead of a number of creditors, usually involves lower monthly payments, and may hold off Court proceedings or repossession of goods under a hire purchase contract. But debt consolidation usually involves higher interest rates, and the payment of significantly more money over a longer period of time. It may also involve relatives or friends being required to guarantee the loan sometimes by a mortgage over their property, and thereby place their property at risk. Financial counsellors usually advise against debt consolidation.
Court Proceedings. When you obtain goods or services on credit, the credit provider will usually be a Bank or Credit Union rather than the trader or provider of services from whom you obtained the goods or services.Your bank or credit card would be debited and the credit provider such as your bank would pay the trader and you would owe the cost of the goods or services (plus interest) to the bank or other credit provider. It would generally be difficult to defend any Court proceedings brought against you by the credit provider in the “Local” or “Magistrates” Court or the “District” or “County” Court. When you receive notice that proceedings are to be issued you may be able to ask the credit section of a Claims Tribunal to vary the terms of the credit contract.
If you receive a claim for payment by a trader or provider of services (as distinct from the credit provider) and you dispute the claim you may avoid the legal costs of Court proceedings by referring the dispute to a Claims Tribunal. If you receive a summons from a trader for hearing in a Court, you should consult a financial counsellor, legal aid office or private lawyer if you wish to dispute the claim or wish to obtain the right to pay the amount claimed by instalments. If you dispute the claim and decide to defend any summons issued against you, you should discuss your defence with a lawyer. It can be very costly to defend a claim, especially claims for small amounts of money (such as a claim for repair costs arising as a result of a motor vehicle accident). You may, for instance, be able to secure a reduction in the amount claimed against you by say, 25%, but if you are ordered to pay the creditor’s legal costs and are liable to pay your own legal costs, you can be much worse off than if you did not contest the claim in court.The position may be different if you have a counterclaim or if you make a payment into court. You can avoid paying legal costs for a lawyer by conducting your own case in court, but this will very likely reduce your chances of defeating the claim against you. Much of the advice given in Chapter 13 about evidence in court in criminal cases may be of assistance in civil cases for debts. You should arrive early at the court, swear on oath or make an affirmation when sworn to give evidence, may cross-examine the other party and may object to “hearsay” evidence, etc.
Instalment Orders. When the creditor obtains a court order for the amount of the debt and for legal costs (which can be quite heavy) he can take action to recover the amount of the court order. This action can include bankruptcy proceedings, compulsory deductions from your wages and seizure of your goods.To avoid such drastic action which will involve you in further legal costs, you should offer to pay the amount of the court order by instalments. The creditor will normally accept payment by instalments. If you attend the court when judgement is entered, you should make an offer to pay by instalments to the magistrate and ask him to incorporate instalment payments as part of the court order.
You may, in many cases, approach the court after the judgement has been entered seeking time to pay. The creditor will have to be notified of such an application. Contact the court, a financial counsellor or a Legal Aid service to ascertain the procedure. The debtor must provide full information of his financial position. If an instalment order is made the creditor cannot (in most States) pursue other debt recovery procedures. If the debtors position improves or worsens the terms of the order may be changed.
Imprisonment of Debtors. Debtors who have the means to pay, who persistently and wilfully default, who have had an opportunity to explain their circumstances to the court and who do not have an honest and reasonable excuse for non-payment may be imprisoned. The criteria for incurring a prison sentence and the maximum sentence vary from state to state. You should seek legal advice if faced with the prospect of being jailed for not paying pursuant to a court order against you. Imprisonment of debtors is extremely rare.
Attachment Order. If you do not make an arrangement with the creditor and judgement is entered against you, the creditor may attach your earnings.This means that the court orders your employer to deduct money from your wages and pay it to your creditor or creditors until the total amount claimed is paid off. In deciding the amount to be deducted the court will take into account your other commitments, such as rent, mortgage payments and provision for your family.
Some people facing attachment of their wages change jobs and start a new job under a different name.This is not recommended since it may be regarded as deceptive conduct warranting a fine or even jail.Your employer is not permitted to sack you simply because he is ordered to deduct money from your wages under an attachment order. The existence of an instalment order will generally prevent an attachment order.
Seizure of Goods. A creditor who has obtained judgement against you can issue a warrant of distress under which the court authorizes an official (usually a sheriff or bailiff) to seize your goods. If an official approaches you with a warrant and you had not been previously served with a summons leading to the judgement against you, you should tell the official that you intend applying to the court for the judgement to be set aside. If you do not dispute the amount claimed by the official in the warrant of distress you can ask the official or the creditor to be allowed to pay the amount claimed by instalments, and if necessary seek to obtain a court order for instalment payments.You should ask the official with the warrant of distress to produce his identification card, and should be careful not to commit any assault. The official is not allowed to force his way into your home. The official cannot take your tools of trade (unless they exceed a certain value), kitchen furniture, clothing or bedding. He may take only the property of the person against whom judgement has been obtained, and may take goods and furniture to cover the amount of the judgement debt, including legal costs plus the cost of the warrant.
The official may decide not to take the goods from your home, but may merely place a label on them with a view to selling them at a later date, usually by a public auction. If the goods seized by the official belong to someone other than the judgment debtor, that person can challenge the seizure by approaching the court and issuing proceedings, usually called an interpleader summons.
Bankruptcy. A creditor can make you bankrupt by a creditor’s petition if the amount of the judgement debt exceeds $2,000. A person in financial difficulties can also make himself bankrupt—this is called voluntary bankruptcy. If you are made bankrupt, either on a creditor’s petition or your own petition most of your assets are sold and divided up among your creditors by an “official receiver” appointed by the Federal Court.
Your assets under the control of the official receiver would include your savings, investments, home and motor vehicles, etc. You may keep items of basic household furniture, which would normally include refrigerator and television, etc. and tools of trade up to $3,000.You may be able to keep your car if you live in the country or you need the car to obtain regular medical treatment (this also applies to seizure of goods by a sheriff or bailiff).
There are several disadvantages of being declared bankrupt. If you are married and own a home jointly with your husband or wife your house will be sold unless your spouse can afford to buy your share. You can keep some of your assets but most of your assets will be taken over by the official receiver and distributed to your creditors.
The Federal Court may examine ways in which you have disposed of your property for up to five years and may overturn transactions designed to defraud your creditors. Some of your income may go to your creditors, you may not be allowed to hold positions of trust, and you cannot borrow more than $4,083 without advising the lender of your bankruptcy. You will not be discharged from bankruptcy for three years unless you pay out the creditors, and even when discharged you may find it difficult to obtain credit. But bankruptcy has some advantages. At the end of three years you are no longer liable for the debts which existed when you were declared bankrupt. During three years you will not be hassled by court proceedings and bailiffs.When you are discharged from bankruptcy (after three years which is usually automatic), you start again with a clean slate.
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