Can My Creditors take me to court?
If you haven’t decided whether or not to declare bankruptcy, there is always the chance the people you are in debt to might take you to court to collect what you owe them.
Prior to my bankruptcy I found it very stressful not knowing what the creditors were going to do next so, for your peace of mind I will quickly go over what your creditors can and can’t do.
A creditor can begin legal proceedings to get the court to give a judgement that you owe them a certain amount of money. If you dispute that debt, you can lodge a defence to your creditor’s claim. It’s then up to the court to decide whether you owe the money and – if so – how much. If you don’t lodge a defence, the creditor gets what is called a ‘default judgement’. That means the court believes the debt exists.
That judgement also gives the creditor several additional tools to use to recover what is owing to them. These include:
- From the date of judgement, interest is added to the debt (at court interest rates)
- The creditor can force your assets to be sold by the Sheriff to cover what you owe
- The creditor can take some of your wages against your debt
- The creditor can have you examined before the court in regard to your financial affairs
- The creditor can apply to the court for you to be made bankrupt
Each of these initiatives is defeated by you filing for bankruptcy – your future is in your hands – but I want to give you a bit more detail about the process so you will understand what is happening if your creditor does get a court judgement – it’s called a ‘judgement debt’. Once the creditor has a judgement debt, below is a brief description of what the creditor can do to obtain payment from you.
Writ of Execution
After 21 days from judgement, your creditor can ask the court for a ‘Writ of Execution’. This allows them to have your assets sold by the Sheriff. The proceeds of that sale are paid to the creditor.
With a Writ of Execution, the Sheriff can sell your household furniture and possessions, car, house – everything you own. You can stop this process by becoming bankrupt. When you become bankrupt your household furniture and possessions are protected, your car is protected up to an auction value of $7900 and your tools of trade up to an auction value of $3750. Bankruptcy protects what you need for your day-to-day life.
After 21 days from judgement, your creditor can apply to the court for a ‘Garnishee Notice’. This means your employer must deduct money from your wages and pay it to the creditor.
You can stop the garnishee notice by becoming bankrupt. Once you have the protection of bankruptcy, you are allowed a certain amount of income. With no dependants, you can bring home $1112 per week after tax and that money is protected for you. If you have dependants, this amount increases up to the level of $1513, according to how many dependants you have.
After 21 days from judgement, the creditor can apply for you to be examined before the court, in regard to your assets and liabilities. If you receive a summons to attend, you must go to court at the day and time specified, or you could be arrested.
Again, if you become bankrupt, this option is no longer available to your creditor. However, if you receive a court summons and then file for bankruptcy, you must tell the court about your bankruptcy and get confirmation you no longer need to attend. Otherwise, you must still attend with your bankruptcy papers and tell the court you have become bankrupt.
Creditors’ application for you to be made bankrupt
A creditor who has judgement can apply to the court for you to be made bankrupt, but don’t worry – it will not happen by surprise.
For a creditor to make that application, they must first issue you with what’s called a ‘Bankruptcy Notice’. To do this, the creditor must pay a fee of $470 and have a judgement debt for more than $5000, which is no more than six years old.
When you are served with a bankruptcy notice, you have 21 days from that date to pay the debt. If you don’t, your creditor can go ahead with the application for you to be made bankrupt.
For a bankruptcy notice to be served, don’t expect someone to turn up at your door. It can be done that way, but it can also be done via post, courier, fax or email.
If you receive a ‘Creditors’ Petition’ (an application to the court for you to be made bankrupt), there are several things you need to be aware of:
- If you pay the creditor, another creditor can jump into the Creditors’ Petition and continue the bankruptcy application
- The creditor making the application can choose who is to be the trustee of your bankrupt estate
- If the court makes you bankrupt, the three years of your bankruptcy will not start until you lodge a Statement of Affairs with the Australian Financial Security Authority (AFSA)
- If you file for bankruptcy before the court makes you bankrupt, you can choose who will be the trustee of your bankrupt estate
- You can apply for bankruptcy after receiving a Creditors’ Petition to stop the court process, providing you have received a bankruptcy number before the court sits to hear the application.
By now, I hope your knowledge on the debt collection process and what you can do to protect yourself has increased. This should help to keep your stress levels down. If you have any questions please call 1300 794 492 or email firstname.lastname@example.org.
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