9.1 Debts

A debt exists when one person, the debtor, owes money to another, the creditor. Unpaid electricity or telephone bills, doctor's fees and credit card accounts are common examples of debt. This chapter deals with the law and procedure of debt in the areas of:

• how a creditor can make a debtor pay
• a debtor's rights and options.

The main Acts controlling debt collection in the NT are the Small Claims Act 2016 ('SCA'), the Northern Territory Civil and Administrative Tribunal Act (NT) ('NTCAT Act') and the Local Court Act ('LCA'). Reference should also be made to the Northern Territory Civil and Administrative Tribunal Regulations (NT) ('NTCAT Regs') and the Northern Territory Civil and Administrative Tribunal Rules (NT) ('NTCAT Rules'). In additions to these Acts, the Australian Consumer Law (ACL) which is a schedule to the Competition and Consumer Law 2009 (Cth).

The procedures described in this chapter do not apply to proceedings in the Supreme Court, but only to the Northern Territory Civil and Administrative Tribunal ('NTCAT') and Local Court. Any person considering taking proceedings in the Supreme Court should seek legal advice.

From 1 May 2016 small claims up to $25,000 will be dealt with in the NTCAT. If before 1 May 2016 a small claims procedure had been commenced in the Local Court it will remain with the Local Court until it is finished, including any appeals. Enforcement of orders will remain with the Local Court (see Making a debtor pay, this section).

The main legal counselling services in the NT are Darwin Community Legal Service, Top End Women's Legal Centre, and the NT Legal Aid Commission.

For more information about the services these organisations provide, see Legal aid, chapter 2.

Forms

All of the forms mentioned in this section are available from the NTCAT and the Local Court. Those living in remote areas should contact their nearest court house, which will send forms out. There are court houses at Katherine, Tennant Creek and Nhulunbuy (see Contact points).

Common causes of debt

Common causes of debt are buying too many goods on credit, family separation and divorce, unemployment, motor vehicle accidents and failed businesses.

In some situations it is possible to get out of a debt, so a reader should refer first to the chapter that deals with the type of debt concerned. For example, if the debt arose due to a car accident, Insurance, chapter 16 and Accidents & injuries, chapter 11, should be consulted.

A variety of options are available to a person who has fallen into debt (see A debtor's options, this section).

Over commitment

Many people buy or agree to buy goods they can't afford. A person who finds themselves in this situation should, as soon as possible after making the purchase, inform the seller in writing that the goods can't be paid for and ask if they can be returned or the contract ended. However, a seller is usually under no obligation to do either. A debtor who is temporarily unable to pay should ask for extra time to pay. It is also important to find out whether a cooling off period applies to the credit contract (see Buying on credit, chapter 7).

Credit providers and retailers sometimes talk people into credit they can't afford, however under the National Credit Code (NCC) credit providers are required to make a reasonable assessment as to whether a credit contract is unsuitable for a consumer based on a reasonable assessment of the consumer's financial circumstances. Penalties apply for credit providers who fail to do this. A person who finds themselves over committed, or has difficulty managing money, may benefit from financial counselling. A financial counselling service can assess a person's overall financial position, suggest solutions and help make arrangements with creditors.

In some circumstances, a consumer who has been given credit they could never afford has a right to extract themselves from the contract if its terms are harsh and unconscionable (see Buying on credit, chapter 7). An unconscionable contract is said to exist where the party with greater bargaining power, often the credit provider or supplier of goods, has taken advantage of a weakness or disability in the other party in a morally culpable manner.

Anyone who receives a request for payment of an account should first ask:

• Do I owe the creditor the money? A person should look closely to see whether they do in fact owe the amount of money the creditor is after.
• Is there any reason why I shouldn't pay the debt?
• Can I afford to pay the debt? A person should think about how they will obtain the money to pay the debt and how long it will take to obtain it. It is important to be realistic.
• What sort of action can the creditor take to recover the debt and what sort of action are they likely to take?
• What action can I take if I can't pay the debt?
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Debt or damages?

The NTCAT and Local Court hear claims for damages as well as debt. Basically, damages are amounts payable (whether ordered by courts or otherwise) as compensation for loss or suffering by one person caused by another's action or failure to act. For example, a driver whose car is damaged in a collision that is another's fault will often seek damages; that is claim compensation for the loss. The amount of this loss must be claimed as damages unless the driver at fault agrees to pay the amount needed to repair the car. The amount of damages is liquidated (known) if a figure can be put on it. In some cases damages are unliquidated. Unliquidated damages means 'a pecuniary demand where the amount due is fixed and specific, or where it can be readily reduced to a certainty by a mathematical calculation' [see CML v Giannarelli [1977] VicRp 53; [1977] VR 463 at 468]. Examples of unliquidated damages include pain and suffering, and the court will be asked to quantify the damages.

A debt, however, is a liquidated (known) amount owed by the debtor to the creditor. For example, if a builder quotes $500 to carry out repairs and then carries out the repairs as quoted, the debt (the liquidated amount owed by the person having the repair work done) is clearly $500.

A debtor and a creditor don't have to have always agreed on the fixed or specified amount owed. If the creditor takes action to recover a debt, they are seeking recovery of what they say is the debt. If the debtor disputes the amount of the debt, they should defend it. It should be borne in mind that the onus is on the creditor to prove the debt. If, in the previous example, there had been no prior agreement as to the amount to be charged for the work, a court would agree there is a valid debt as long as the builder fixes an amount reasonable in the circumstances - for example, $500.

Failing to pay

A debtor who has fallen behind in their payments generally receives a letter from their creditor demanding payment. Often creditors hire debt collection agencies to chase their debts. When this happens, a debtor generally receives demand letters or other forms of contact, such as telephone calls, from the debt collection agency (see Harassment by debt collectors, this section).

Letters of demand

A letter of demand usually threatens a debtor with legal action if the debt remains unpaid within a reasonable time, usually 10 to 14 days. A creditor who doesn't send a letter of demand may have difficulty recovering the cost of issuing a summons (Statement of Claim) from a debtor willing to pay the debt.

A debt collection agency may add to the alleged debt a fee often referred to as its 'costs', but, generally, this fee need not be paid.

Where there is doubt about the nature of a document received or the legality of the amounts claimed in the document, legal advice should be sought immediately (see Legal aid, chapter 2).

If the debt is covered by legislation, that legislation might require the creditor to send you particular notices before it can take further action to force you to pay the debt. For example, if your debt is a loan covered by the National Credit Code, a creditor will almost always have to send you a notice under section 88 of the NCC, giving you 30 days to bring the loan account up to date before the creditor can take further action (for more information about the NCC, see Chapter 7).

Debt collection costs

A debt collection agency has no right to charge a debtor a fee for collection of their debt except where:

• the fee is for certain types of repossession of goods on hire purchase - in this situation, this will be set out in the hire purchase contract
• the debtor has previously agreed to pay it - agreement to pay is sometimes a condition of credit card use
• a court orders these costs be paid.

A debtor who has needlessly paid debt collection costs can have them refunded or deducted from the total amount owed.

Responding to a letter of demand

Many debtors assume they are legally obliged to pay their debts regardless of the circumstances. However, some claimed debts are not legally enforceable or are only partly legally enforceable. A debtor should talk to a solicitor to find out whether a debt is fully enforceable.

A person who receives a letter of demand should:

• if a contract exists, check the name or names on it to ensure they are responsible for the debt
• check the amount the creditor is claiming - the calculation of the total amount owed can be complicated and mistakes made
• where appropriate, write to the creditor asking for a detailed statement of individual items, interest, terms, charges and any other relevant information. Request that no further action be taken until this information is provided.
• if the letter has come from a debt collection agency, write to them advising that a letter has been written to the creditor asking for a detailed statement
• when a statement is received, check it carefully or have it checked by a professional body
• if there appears to be errors or areas of doubt, write to the creditor requesting they clarify or correct the statement
• if a satisfactory response is not forthcoming, seek advice from a solicitor or financial counsellor.

All letters to creditors and debt collection agencies should be dated, photocopied and copies kept for future reference.

A debtor's options

Once the amount owed on each debt is established, a debtor is in a position to consider the options for each debt, which are to:

• pay the debt
• not pay the debt
• return any goods in question, though this would be a matter for negotiation with the creditor
• make an informal offer of payment by instalments
• offer a reduced lump sum to finalise the debt
• ask the creditor to write off the debt
• request a moratorium, an informal arrangement whereby interest or periodic payments are postponed for a period
• if you have a loan regulated by the National Credit Code seek a hardship variation of your repayment obligations (see Chapter 7)
• suspend creditor enforcement for 21 days by presenting a declaration of intention to present a debtor's petition (see Bankruptcy, this chapter)
• enter voluntary bankruptcy (see Bankruptcy, this chapter).

Some of these options may not be available in certain circumstances. A debtor without money, for example, has fewer options. A debtor may also choose a combination of options. Either way, a letter outlining the debtor's financial situation should be sent to the creditor. A debtor should set out their situation in some detail, giving information about dependants and any special circumstances. A debtor should also mention if their inability to pay is temporary. The amount of detail a debtor should include will vary according to the circumstances.

An offer to pay by instalment is more likely to be accepted if a creditor is aware of a debtor's financial situation. When working out how much can be paid, all income, recurring expenses such as food and household expenses, other debts and an amount for unusual or emergency needs, must be taken into account. A debtor who can't afford to pay or can only afford a nominal amount, or whose inability to pay is temporary, should request a moratorium.

A creditor doesn't have to accept an offer to pay by instalments and, where an offer is made or the debt is left unpaid, can choose to go to court. However, a creditor considering legal action should remember that, with some exceptions, a court can't make someone pay money they don't have (see Making a debtor pay, this section). A debtor who has no income or assets is not particularly vulnerable to recovery action. A creditor in such circumstances may choose to waive or write off the debt. A debtor may request a 'write-off', agreeing to pay the principal only or none at all. To be legitimate, a creditor's agreement to waive a debt must be made in writing.

A creditor who writes off a bad debt can claim a tax benefit and is saved the administrative expense of recovery action. Particular hardship, such as the death, permanent disability or desertion of a breadwinner, may warrant a request to waive a debt, especially if the debtor can be shown to have been a good customer over a number of years.

If a debtor's inability to pay is likely to be long-term, but they have access to a lump sum of money, such as a compensation payment, inheritance or proceeds of sale of an asset, the creditor may be willing to accept less than the full amount owed in exchange for the certainty of being paid something.

***Seek variation of your repayment obligation

If you have a loan regulated by the NCC and you have fallen behind in your repayments due to a change of circumstances (for instance, you may have lost your job or suffered illness), you may be able to apply to the creditor for a variation of your contract on the ground of hardship. Such a variation might take the form of payments being deferred for a few months while you get back on your feet, or the creditor accepting lower repayments during this time. The request for variation should be made in writing. For a discussion of hardship variation applications under the NCC, see Chapter 7.***

A debtor having difficulty with numerous debts can investigate several other options, such as:

• debt consolidation
• pro-rata repayment schemes

A debtor should not enter a new legal contract to pay off an old debt, obtain a debt consolidation loan or enter bankruptcy without first seeking independent legal or financial counselling advice (see Legal aid, chapter 2).

Debt consolidation

The term debt consolidation generally applies to an additional loan taken out to pay off two or more existing debts. Debt consolidation can provide a solution to financial problems, but may not if the regular loan repayment amounts to almost the same amount as the sum of the previous smaller debts. Although debt consolidation can provide short-term benefits, this option can often be more expensive in the long run if the additional loan has been taken at higher rate of interest, the debt consolidation includes additional costs, such as interest or collection costs, or if repayments extend over a longer period of time.

Pro-rata repayment scheme

A pro-rata repayment scheme is an informal scheme that can be set up by a debtor, usually with the advice of a debt counsellor, to ensure that all creditors are repaid by instalment over a period of time. The amount each creditor is offered is calculated on a proportional basis. The debtor works out how much they can comfortably pay and then divides that amount amongst the creditors in one of two ways. Each creditor is offered a monthly payment based on either the total amount owed by the debtor or a proportion of the total amount owed to that creditor. Creditors are attracted to pro-rata schemes, but this option does not always provide the best deal for debtors, particularly if some debts are secured (mortgaged) because secured goods can still be seized if the proper instalments, as detailed in the mortgage agreement, are not met.

Voluntary bankruptcy

If a debtor's financial situation is hopeless, voluntary bankruptcy is often a viable option (see Bankruptcy, this chapter)

*** Credit reporting and privacy protection

On 29 November 2012, the Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth) was passed by the Australian Parliament. This Act reformed credit reporting laws by moving to more comprehensive credit reporting and adding further privacy protections for individual's credit-related information. This includes:

• reporting information about your current credit commitments and your repayment history information (RHI) over the previous two years. RHI includes the day on which a payment is due, and the date on which you paid. It does not include the amount of any missed payment only the fact that you have made or missed a payment;
• a simplified and enhanced correction and complaints process;
• prohibiting the reporting of defaults of less than $150; and
• allowing an individual to freeze access to their credit related personal information in cases of suspected identity theft or fraud.

For the most part, these changes commenced in March 2014, however the regime provides that information collected since December 2012 about credit history may appear on your credit report and therefore affect your ability to get credit in the future.

If you are slow to pay a debt, the creditor is likely to inform a credit reporting agency. Briefly, under paragraph 9 of the Privacy (Credit Reporting) Code 2014 (Version 1.2), which is registered under the Privacy Act 1988 (Cth) ('PA 1988'), the most common circumstances in which a credit provider (creditor) can make a default listing on your credit report are when:

1. you are at least 60 days overdue in making a payment on a debt; and

2. the credit provider has taken steps to recover the amount outstanding; and

3. the credit provider has notified you at some stage that it will list you in default if you become overdue in paying. (Note that this notification is often contained in the original terms and conditions of the contract with the credit provider.)

It is important to note that lodgment of a default listing on your credit report is not part of the court process for recovery of a debt. This means that a credit provider does not have to automatically lodge a default listing even if it has the right to. If you contact a credit provider when you have failed to pay a debt, you may be able to avoid having a default listing lodged if you enter into an arrangement to repay the debt.

Except in the case of credit-related personal information that is inaccurate, out-of-date, incomplete, irrelevant or misleading (which may include cases where the debt was statute barred, or no longer legally enforceable (see Statute barred debts, below), at the time it was listed), corrections to the default listing are not generally available.

The best you can do is get a note attached to your credit report saying that you have paid off the debt; a default listing cannot be removed just because the debt has subsequently been paid. Default listings stay on your credit report for five years from the date of listing, unless the default is classified as a serious credit infringement, in which case the listing will remain for seven years. The most common instance of such a classification is termed a clearout, where the debtor has moved house without notifying the creditor, who is thus unable to contact the debtor.

The most common credit reporting agency used by financial institutions is Veda Advantage Ltd (previously called Baycorp Advantage). When you apply for a loan, most financial institutions will run a credit check on you by accessing your credit file at Veda Advantage. If default listings are on your report, it may become harder for you to obtain credit in the future. Dun & Bradstreet is another important credit reporting agency for consumers.

Listings are automatically made on your credit report if:

• a judgment is entered against you in a court; or
• you go bankrupt.

While court judgments are held on your credit file for five years, bankruptcies remain there for seven years.

Queries about your credit report

If you have a query about your credit report, or wish to obtain a copy of your credit report from Veda Advantage or Dun & Bradstreet, contact:

Veda Advantage

Tel: 1300 762 207

Email: assist.au@veda.com.au

Web: www.mycreditfile.com.au; www.veda.com.au

Dun & Bradstreet

Tel: 13 23 23; 1300 734 806

Email: pac.austral@dnb.com.au

Web: www.checkyourcredit.com.au; www.dnb.com.au

On 1 July 2010, the Australian Securities and Investments Commission (ASIC) assumed responsibility for regulating consumer credit .

Australian Securities and Investments Commission (ASIC)

Tel: 1300 300 630

Web: www.moneysmart.gov.au; www.asic.gov.au***

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Harassment by debt collectors

Debt collectors, also known as commercial agents, must be licensed under the Commercial and Private Agents Licensing Act 1979 (NT) ('CPLA'). An agency that engages in conduct that constitutes unfair or improper harassment while collecting debts can lose its licence. Although debt collectors are not obliged to show identification, it is wise to ask them for it because anyone who, without the appropriate licence, purports to be a commercial agent, inquiry agent, process server or private bailiff is guilty of an offence.

Under the CPLA, it is an offence for a debt collector or commercial agent to:

• humiliate a debtor by performing at a debtor's premises any act that might lead a passerby to believe the occupant of the premises is being visited by or is under the surveillance of a commercial agent
• suggest to the debtor that, if the debt is not paid, action may be taken to embarrass or prejudice the debtor at work
• make unreasonably frequent telephone calls or visits to the debtor's home or work.

A person who has been harassed by a licensed debt collector or bailiff can complain to the Commissioner of Consumer Affairs (see Contact points). If the alleged harassment is substantiated, the Commissioner may take disciplinary action against the debt collector or bailiff.

Serious harassment, such as actual violence or threats of assault, is a criminal offence under the Criminal Code (NT). Any incident should be reported to the Solicitor for the Northern Territory (SFNT), who may begin proceedings to cancel the agent's licence [CPLA s.16], and/or to the police, who can charge the offender if an assault or other criminal offence has been committed.

***Statute barred debts

Under the Limitation Act 1981 (NT) ('LA'), a creditor only gets a limited amount of time to sue a debtor. That period of tme is three years. If a creditor does not bring a court action against you within the relevant time limit the debt becomes what is called statute barred and you have a complete defence to any court action brought against you.

Time under the LA starts to run from:

the date you should have made payment

the date you last made payment; or

the date that your or your representative acknowledged in writing that you owe the debt.

You should go to the most recent of these events and count three years. If three years has expired, the debt is statute barred. While this does not mean that the creditor cannot ask you to pay the debt, it does mean that if the creditor seeks to sue you in court for payment, you will have a complete defence.

If your debt is statute barred, it is recommended that you write to the creditor and request that they stop contacting you for payment because the debt is statute barred. In any letter to the creditor on this basis, it is vital to include a sentence such as, "I deny that I am liable for the amount demanded".

If judgment has been entered against you, the relevant time limit is 12 years, not three years, from the date of judgment.

If you have given a mortgage for payment of the debt (e.g. over a house or a car), the relevant time limit is 12 years from the date of the end of the term of the mortgage. However, the LA states that this time period only relates to the recovery of the principal lent by the creditor, not the interest. It is likely that action for interest on a mortgage must be brought within three years.***

Going to court

Court or Tribunal proceedings can be time consuming and may be expensive so a creditor generally makes several demands for payment before taking action. If demands do not succeed, legal action may be the only other option open to a creditor seeking to recover a debt.

Court or Tribunal?

Whether an action for recovery of a debt is heard in the Supreme Court, the Local Court or the NTCAT depends on the size of the debt involved. In the case of the NTCAT matters which would otherwise be within its jurisdiction may be transferred to the Local Court or the Supreme Court if for example the matter was complex or raised difficult or novel issues. The NTCAT may refer matters to the Local Court if the matter is closely related to a cause of action between the same parties in the Local Court.

• claims over $100,000 must be heard in the Supreme Court
• claims between $25,000 to $100,000 are heard in the Local Court
• claims up to $25,000 must be heard in NTCAT but note that certain matters may be transferred to the Local or Supreme Court

In general, the court or that hears a matter is usually the one nearest to where the debtor lives or works now or at the time the cause of the action arose; the court closest to where the cause of action arose, or the one nearest the creditor's place of business.

Small claims proceedings in the NTCAT

NTCAT commenced in the Territory on 6 October 2014 under the Northern Territory Civil and Administrative Tribunal Act (NT). Matters before the NTCAT are dealt with by members and the Tribunal is presided over by the Tribunal President.

The NTCAT is described as the new 'super tribunal'™ for the Northern Territory. It is 'designed to be a one stop shop for reviewing a wide range of administrative decisions and resolving certain civil disputes'. The use of mediation and alternative dispute resolution procedures wherever appropriate is an important feature of NTCAT designed to ensure efficient and cost effective resolultion of matters with as little formality and technicality as possible.

The NTCAT provides for less formal procedures to deal with smaller debts. Lawyers cannot appear as of right before the NTCAT but must seek the leave of the Tribunal to appear. If a party to an action is represented by a solicitor, they cannot generally recover the solicitor's costs if judgment is entered in their favour. Legal advice about small claims matters is available at all offices of the NT Legal Aid Commission, the Darwin Community Legal Service, (see Contact points), and NAAJA (see Legal aid, chapter 2).

Costs in the NTCAT

The general rule is that each party pays its own costs. This means you may win your matter but if you were represented by a lawyer (with leave of the Tribunal) you may not recover your lawyer's costs. The Tribunal does have discretion to award costs and in doing so take certain matters into consideration such as the need to ensure that proceedings are fair and that parties are not disadvantaged by proceedings that have little or no merit.

Commencing an action in the NTCAT

Proceedings in the NTCAT are commenced by completing and filing a Form 1 initiating application. The person filing the claim is the applicant and the other party is the respondent. In a court matter the parties would be the plaintiff and defendant respectively. The form requires a description of the subject of the application, which in a debt recovery matter might be breach of contract; the decision that you want the NTCAT to make which might be that the respondent pay the applicant x dollars within say 28 days; and the reason why NTCAT should make the order being a summary of the facts and circumstances not exceeding one page. Proceedings will only commence if the Form 1 application is accepted by NTCAT. NTCAT may reject an application if, for example, the person making it is not entitled to make it. Once accepted the NTCAT will insert a date on the form for when the parties are to appear at the Tribunal. This will usually be for a directions hearing which is designed to identify the areas of agreement and disagreement between the parties, identify the evidence that the parties intend to rely and how that evidence is to be presented, make other directopms for the efficient resolution of the proceedings, fix a date for any compulsory conference and fix a date for hearing.

Serving a Form 1

If accepted, the Form 1 will be stamped and signed by the Registrar at the Tribunal and returned to the applicant for service on the respondent. NTCAT Rule 3 deals with service of documents in NTCAT matters. Rule 3 requires that a party take reasonable steps to bring a document to the attention of the other party as soon as possible. NTCAT needs to be confident that a party required to be served with a document is or should be aware of it. If the party to be served is a corporation service can be effected by

The address of the registered office can be ascertained by a company search from ASIC. The search fee can be included in the amount of money sought from the respondent. If the respondent is the Northern Territory Government serve the Solicitor for the Northern Territory.

Response

A respondent who wishes to defend the claim must file and serve a Form 2 Response as soon as they reasonably can. If the respondent does not file a Response the NTCAT may deal with the application on the basis that it is not opposed by the respondent.

Directions Hearing

As noted above (Commencing an action in the NTCAT) the application is usually listed for a directions hearing before being listed for final hearing. At the directions hearing the parties will be encouraged to agree on the issues and identify what evidence they propose to rely on and when they can get that evidence to the Tribunal. Usually a timetable is made for filing and serving evidence. The matter may be listed for mediation in an effort to resolve the matter without going to hearing.

Mediation

The NTCAT will refer suitable matters for mediation. This may not be with the consent of the parties. Mediation is confidential which means that anything said or discussed cannot be repeated outside the mediation. This is designed to ensure a frank and open discussion in an effort to reach settlement and avoid a hearing. If the parties reach agreement it should be reduced to writing and signed. If the mediator is also a member of the NTCAT the settlement agreement becomes an order of the Tribunal. If the mediator is not a member of the NTCAT the settlement agreement needs to be referred to the NTCAT. If the parties agree in writing to settle a matter, the Tribunal may make any decision or order necessary to give effect to the settlement.

Hearing

At the hearing, the applicant and the respondent present their cases to the Tribunal. Each has the opportunity to call witnesses, to tender evidence and make submissions on the facts or the law. After hearing both sides, the member makes a decision and records a judgment.

Parties need to use their best endeavours to be ready to proceed on the day a matter is listed for hearing. Directions hearings listed prior to the hearing date are designed to ensure that parties are ready so that a hearing can proceed as planned. Any difficulties with preparation should be brought to the attention of the Tribunal so that a further directions hearing can be listed if necessary.

A person who is not ready to proceed or can't attend a hearing should explain the circumstances to the other party and ask for consent to an adjournment. If consent is refused, an application should be made to the Tribunal for an adjournment. If there is insufficient time, the Tribunal should be informed of the problem either by telephoning or writing to the Registrar before the hearing date or by sending someone to the Tribunal on the day of the hearing to explain. As a general rule, the earlier the Tribunal and the other side are informed of the need to seek an adjournment, the more sympathetic the Tribunal will be to the adjournment. If the adjournment is to be sought on medical grounds, a medical certificate should be obtained.

With good reason, the hearing may be adjourned to another time, but the party not attending may have to pay any costs incurred by the other party due to the delay. If the reason for the adjournment is not sufficient, the matter may proceed in the party's absence.

If the respondent does not appear at the time set down for the hearing and no adjournment is requested or given, the Tribunal can still proceed with the hearing as though a Form 2 Response had not been filed, or it may dismiss the proceeding or adjourn the matter. If a respondent is absent, the court will only hear the applicant's side of the case, so is likely to make a judgment unfavourable to the respondent.

If the applicant doesn't appear when the matter is called, the Tribunal can either dismiss the claim or adjourn the hearing to another day. If the member decides in favour of the respondent, the alleged debt does not have to be paid.

Proceedings in the Local Court (for claims over $25,000)

The remainder of this chapter describes proceedings brought in the Local Court for debts greater than $25,000.  

Costs are routinely awarded by the Local Court. This may mean that if you lose you will be ordered to pay the other party's legal costs and disbursements (if any).  

The Local Court in hearing matters in its general jurisdiction is bound by the rules of evidence. WHAT DOES THIS MEAN?

Issuing a Statement of Claim

This is dealt with in LCR Part 7. Before the creditor, referred to as the plaintiff,can bring the matter before the Local Court, several steps must be taken to notify the debtor, referred to as the defendant, that action against them has begun. The creditor must:

• fill out a Statement of Claim (Form 7A, available from the Local Court), setting out the basis of the claim and advising the debtor about the steps they need to take after receiving the Statement of Claim
• issue the Statement of Claim; that is, file the claim with the court they want the action to be heard in
• arrange for a copy of the Statement of Claim, which must be signed and sealed by the Registrar of the court, together with a blank Notice of Defence form (see Defending a claim, this chapter), to be served on the debtor.

As well as claiming the debt the plaintiff can add on prescribed amounts for legal costs (if any) in preparing the Statement of Claim plus the fee for the filing and service of the Statement of Claim. The Statement of claim must contain this statement: If you pay the amount of $ and costs of $ to the plaintiff or the plaintiff's legal practitioner without filing and serving a notice of defence you may avoid further costs. This tekks the defendant how much they have to pay to bring the matter to an end.

Serving a Statement of Claim

The methods by which a Statement of Claim filed in the Local Court can be served are set out in detail in the Local Court Rules (refer Part 6 LCR). Creditors may serve a Statement of Claim in person, but usually the creditor's solicitor or a private process server does it on their behalf. In remote areas the police may serve a Statement of Claim.

A Statement of Claim must be served personally on the defendant. This means that a person must personally hand the Statement of Claim to the defendant.

Private process servers often deliver court documents, and they must be licensed. A complaint about the conduct of a private process server can be made in the same way as a complaint about a debt collector (see Harassment by debt collectors, this section).

A Statement of Claim may be served by handing a copy personally to the debtor at their home or at any other place. If it appears that the debtor is trying to avoid being served, it can be delivered by putting it down in the debtor's presence and telling them that it is a Statement of Claim. If the defendant is a company the Corporations Act (Cth) sets out the method of service, namely:

If the respondent is the Northern Territory Government serve the Solicitor for the Northern Territory.

The creditor can also apply to the court for an order for substituted service, which allows them to bring the Statement of Claim to the debtor's attention in some other way, for example, by posting it in the mail. An application for an order for substituted service must identify the alternative method of service, for example, by putting on evidence that the person resides at a particular address and is avoiding service by refusing to open the front door.

The rules governing the serving of Statements of Claim have tightened in recent years so it is extremely rare nowadays for a defendant to allege they were not properly served.

A Statement of Claim must be served within one year of the date it is filed in the court, unless this period is extended by the court.

Under the Service and Execution of Process Act 1992 (Cth), a Statement of Claim may be served outside the State or Territory where the debt arose. A special notice must be served at the same time the Statement of Claim is served. Care should be taken to ensure this notice is given to the debtor at the time of service, otherwise the service will be invalid.

Admitting a claim

A debtor has little to gain and much to lose by defending a claim when they have no realistic defence or counterclaim. Although filing a Notice of Defence can be a useful negotiating tactic, it is often cheaper to settle a claim than to fight it and lose in court. Rather than pursue a case that they can't win and then lose, a debtor may be wise to admit the claim and come to an agreement with the creditor, settling the matter on the best possible terms for both parties or accepting the court's order as to how the debt should be paid. Debtor's should also consider the risk of a costs order if they lose.

What happens if the debtor does nothing?

A debtor has 28 days from the date they receive a Statement of Claim (the date of service) to file a Notice of Defence in the court and also to serve it upon the creditor (see Defending a claim, this section). If a debtor does not file and serve a Notice of Defence within the 28 days or has their Notice of Defence struck out or dismissed by the court, the creditor has 28 days to apply to the Registrar of the Local Court for an order for default judgment, which declares that the debtor owes the debt (see Defending a claim, this section). A creditor taking this course of action should lodge, with their application for an order for a default judgment, an Affidavit of Service, which is a statement sworn in front of a Justice of the Peace or Commissioner for Oaths stating that the Statement of Claim was served on the debtor.

If the Statement of Claim is in the proper form and the registrar is satisfied the order should be made, judgment will be entered without a court hearing and without the creditor having to prove the claim. This is referred to as default judgment. If the debtor does not defend the claim, they are presumed to have admitted it when the default judgment is entered. Once the creditor has obtained judgment, they can take other court action against the debtor to enforce payment (see Making a debtor pay, this section) even if the debt was never owing or the debtor has a legitimate defence.

The amount of the judgment will be the sum of the claim and allowable legal costs. Interest will accrue from the date of the judgment debt.

A debtor wishing to prevent a default judgment must lodge a Notice of Defence at the Local Court and serve a copy on the creditor within 28 days of receiving the Statement of Claim. (see Defending a claim, this section). It may be possible, in certain cases, to have a default judgment revoked (set aside) (see Setting the judgment aside, this section).

Coming to agreement

Action should be taken as soon as a Statement of Claim is received. If the amount claimed is correct and no defence is to be made against the claim, the debtor should make an offer to the creditor and, if possible, reach an agreement before an application for a default judgment is filed. Any agreement should be put into writing and signed by both parties.

A debtor who pays the debt promptly or consents to judgment being entered within 28 days of service of the Statement of Claim can save themselves further costs. After that period a creditor may apply for judgment and have further legal costs and interest added to the debt.

Informal agreements

An informal agreement made between a debtor and a creditor provides no protection for a debtor because the creditor can still apply for judgment and have it enforced. A debtor who finds themselves in such circumstances should immediately apply to have the judgment set aside. A court usually sets a judgment aside if the debtor can show that an agreement was made and that all its conditions were satisfied. Written proof of an informal agreement and receipts for any payments made under it should always be kept as evidence (see above and also Setting the judgment aside, this section).

Admitting liability

At any time before judgment, a debtor can file an Admission of Debt form (Form 19A) in which they admit to owing the whole or part of the amount claimed by the creditor [LCR r.19.03]. Admission of Debt forms are available from the Local Court. If the debtor cannot pay a lump sum, they can apply for an instalment order (Form 50A) [LCR r.50.01], specifying the instalment payments they are prepared to make. The Form 50A should be filed at the same time as the Form 19A together with an affidavit stating the facts on which the application is based. These forms must be filed at the Local Court and served on the creditor by posting to their proper address (see Instalment orders, this section). Legal advice on filling out the form can be obtained from a community legal centre or Legal Aid (see Legal aid, chapter 2).

If the debtor admits to owing the whole amount, judgment will be entered for that amount. Where the debtor has admitted but has not applied for an instalment order, the creditor is entitled to payment of the full amount immediately after judgment is made. If payment is not forthcoming, the creditor can use any of the normal enforcement methods to recover it (see Making a debtor pay, this chapter). Where the creditor objects to a debtor's application to pay by instalments, the dispute is set down for hearing by a magistrate and the parties notified of the hearing details [LCR r.50.03] (see Instalment orders, this section).

Offer of compromise

At any time before judgment the parties may come to an appropriate agreement. This should be formalised by way of an Offer of Compromise [LCR r.20.02]. The debtor can serve an offer on the creditor who may respond with a Notice of Acceptance [LCR r.20.03]. Either party can then apply to the court for an order based on the accepted offer of compromise.

Defending a claim

Once a Statement of Claim is received, a debtor has 28 days to file a Notice of Defence (Form 8A). A debtor who does not believe they owe the whole or part of the money claimed must file a Notice of Defence or face the prospect of having judgment entered against them.A debtor who believes the creditor owes them money will need to file a counterclaim (see Defences, this section).

Filing a notice of defence

A debtor who intends to defend a claim must file a Notice of Defence in duplicate at the Local Court that issued the Statement of Claim [LCR r.8.01]. A blank Notice of Defence form should have been served with the Statement of Claim. A Notice of Defence may be filed at court at any time before judgment. There is no filing fee.

In a Notice of Defence a debtor must set out clearly the grounds of the defence. A creditor has a right to know the case they will have to answer and the facts on which the debtor intends to defend the claim. Rule 8.02 of the LCR sets out the information that must be included in the Notice of Defence. Many people fill out this form incorrectly so it is advisable to gain assistance from a community legal centre or legal aid lawyer (see Legal aid, chapter 2).

Setting the judgment aside

If a debtor does not defend an action by filing and serving a Notice of Defence within 28 days, the creditor may obtain judgment in default. A default judgment need not always be final because the court has the power to set it aside.

Where a default judgment has been entered against a debtor who has a good defence or a belief that the creditor will have trouble proving the claim in court, the debtor can apply for a re-hearing where they can ask the court to set the judgment aside [LCR r.33.03].

A debtor can apply at any time for a court order to set aside the judgment. To do this the debtor should complete an Application for Order to be Set Aside and Re-hearing (Form 36A) form and file it at the court where judgment was entered. The application is to be accompanied by an affidavit stating why the debtor did not file a defence [LCR r.36.01]. When deciding whether to set judgment aside, a court takes into account a debtor's defence against the claim. The debtor will need to explain why a Notice of Defence was not filed. An acceptable explanation might be, for example, that the Statement of Claim was not understood. An Application for Order to be Set Aside and Re-hearing should, therefore, set out brief details of both the reason for failing to respond to the Statement of Claim and the grounds of defence. When this form is filed, the registrar sets a date for the re-hearing. The debtor must appear at court on this date or it is likely that the application will be struck out.

A debtor with a good defence is unlikely to have their application refused so a Notice of Defence should always be lodged with the Application for Order to be Set Aside and Re-hearing. Judgment is rarely set aside unconditionally - usually certain conditions are imposed on one or more of the parties. A common condition orders the debtor to file a defence within 14 days. If the condition(s) are observed, the judgment will remain suspended; if they are ignored, the creditor can apply to the registrar to have the judgment re-entered. If the judgment order is set aside, the Statement of Claim is reheard on a date fixed by the court.

Defences

Defences available to a debtor include instances where:

• the contract or agreement or related documents do not comply with the appropriate legislation or the legislation sets out a defence. For example, some consumer contracts must provide for a ten day cooling-off period, others require certain information to be furnished about consumer rights, still others must use certain forms of contract (see Contracts and consumer protection, chapter 7). Legal advice should be sought to investigate these possibilities.
• the debtor has entered an unjust credit contract (see Buying on credit, chapter 7).
• the debtor was not a party to the contract. Debts are not normally transferable from one person to another. If, for example, a man bought a car on credit (not including hire purchase) and he died before paying off the total debt, the man's wife would not be liable to pay off his debt.
• goods that were promised were misrepresented; that is, the debtor agreed to buy certain goods on the basis of incorrect or inaccurate information supplied by the creditor or trader (see Contracts and consumer protection, chapter 7).
• the debtor was under 18 years of age when they signed the contract and it was not co-signed by a parent or other appropriate adult. Such a contract can only be enforced if it applies to necessary goods such as food, clothing or housing (see Contracts and consumer protection, chapter 7).
• the debt is more than three years old.
• the contract is unfair, for example, the debtor did not understand the nature of the contract or signed the contract under undue influence from the creditor (see Contracts and consumer protection, chapter 7).
• the debtor has been declared bankrupt. Judgment cannot be entered against a bankrupt (see Bankruptcy, this chapter).
• the debt has been paid. Where payment is made after the Statement of Claim is issued, a defence known as tender is available to a debtor who has paid into court the amount allegedly owed before the hearing [LCR r.20.11]. When making payment, a debtor must file a Notice of Deposit (Form 20A). Once the creditor accepts payment, all claims against the debtor are considered settled.
• the debtor has a claim against the creditor. This is called a counterclaim [LCR r.9.01]. A counterclaim can be made where the debtor claims the creditor owes them money, where the goods bought from the creditor were defective or where the debtor is making a claim for damages from the creditor. A debtor can make a payment into court which takes into account any counterclaim against the creditor. The Notice of Deposit should reflect any such adjustment.

A counterclaim must be included in the Notice of Defence [LCR r.9.02] and should contain a statement of the nature of the claim, details of the facts and the amount of money claimed. If the creditor accepts the money, both their claim and the debtor's counterclaim are seen to be settled.

In most cases, a debtor will benefit from legal advice in formulating their defence or counterclaim.

Admissions

Once a Notice of Defence is filed, either party may request, using a Notice to Dispute Facts (Form 19C), that the other admit the truth of certain facts or state what documents they have and bring them to the hearing [LCR r.19.05]. For example, the creditor may call on the debtor to admit that a specified contract was made or that a particular bill represents the money allegedly owed. A debtor who does not formally object to the truth of these facts or documents within 14 days of being served with a Notice to Dispute Facts will be taken to have admitted them. The debtor objects by filing a Notice Disputing Facts (Form 19D).

Where facts are admitted, only the matters still in dispute need be resolved by the court. Either party can ask the court to allow a withdrawal of an admission [LCR r.19.04].

Discovery and interrogation

Discovery and interrogation are two of a number of mechanisms that exist to help parties define the issues at stake prior to hearing. Discovery is a request by one party to another to supply a list of all relevant documents in their possession and a description of each. Once a list of documents has been supplied, the party providing it may be required by the other party to produce the documents for inspection. This is achieved by serving a party with a Notice to Produce Documents for Inspection (Form 16C). A party has 14 days from the filing of the Notice of Defence to make the request for discovery; the other has 14 days to reply. Discovery may also be obtained to inspect documents belonging to a person who is not party to the dispute.

Interrogation is a procedure whereby one party can seek answers to a set of written questions from the other party.

A creditor who does not comply with requests made under discovery and interrogation may have their claim dismissed. A debtor who does not comply may see the court allow the creditor to proceed as if no defence had been filed.

Pre-hearing conferences

After the debtor files a Notice of Defence, the court fixes a date for a pre-hearing conference. A conciliation conference provides both parties with an informal opportunity to clarify the facts and, if possible, to negotiate an agreement. Both parties must attend the conference and can be represented by a solicitor or some other person. The parties must be prepared to answer any question concerning the claim or defence asked by the registrar.

A debtor who fails to attend risks judgment in favour of the creditor. A creditor who does not attend may have their claim dismissed. In either case, an appeal may still be lodged (see Appealing a judgment, this section). There may be one or more conciliation and pre-hearing conferences.

A final pre-hearing conference sets the date for the hearing. At least two days before this final conference, the parties must file at the court a Case Management Statement (Form 32C) and serve a copy on each other [LCR r.32.05]. This document is evidence of the parties' readiness to proceed with the hearing.

The hearing

At the hearing, the plaintiff and defendant, or their representatives, present their cases to the magistrate. Each has the opportunity to call witnesses, to tender any affidavits and make submissions on the facts or the law. After hearing both sides, the magistrate makes a decision and records a judgment.

A person who is not ready to proceed or can't attend a hearing should explain the circumstances to the other party or their lawyer and ask for consent to an adjournment. If consent is refused, an application should be made to the court. If there is insufficient time, the court should be informed of the problem either by telephoning or writing to the registrar of the court before the hearing date or by sending someone to the court on the day of the hearing to explain. As a general rule, the earlier the court and the other side are informed of the intention to seek an adjournment, the more sympathetic the court will be to the adjournment. If the adjournment is to be sought on medical grounds, a medical certificate should be obtained.

With good reason, the hearing may be adjourned to another time, but the party not attending may have to pay the costs incurred by the other party due to the delay. If the reason for the adjournment is not sufficient, the matter may proceed in the party's absence.

If the defendant or their lawyer does not appear at the time set down for the hearing and no adjournment is requested or given, the court can still proceed with the hearing as though a Notice of Defence had not been filed, or it may dismiss the proceeding or adjourn the matter. If a defendant is absent, the court will only hear the plaintiff's side of the case, so is likely to make a judgment unfavourable to the defendant.

If the plaintiff doesn't appear when the matter is called, the court can either dismiss the claim or adjourn the hearing to another day. If the magistrate decides in favour of the defendant, the alleged debt does not have to be paid.

Costs

As a general rule, the magistrate will order the party who has lost the case to pay the other party's legal and court costs, plus interest. Thus, the judgment debt usually includes:

• the plaintiff's claim and filing and service fees
• some of the plaintiff's solicitor's costs
• pre-judgment interest, if applicable.

Pre-judgment interest is interest incurred under the contract from the date the debt was owed until judgment.

In addition to pre-judgment interest, judgment debts carry interest fixed according to the Supreme Court Rules and payable from the date of the judgment or, in the case of costs ordered by the court, from the date of the order [r.39.01]. This interest rate varies over time and is available from the court registry. The plaintiff is not restricted to recovering interest payable on a court judgment. If, for example, the defendant signed a contract agreeing to pay more than the statutory amount of interest, the plaintiff can ask that the difference between that amount and the judgment interest be included in the order. Once judgment has been entered, the plaintiff is called the judgment creditor and the defendant is called the judgment debtor.

Appealing a judgment

Appeals from a Local Court judgment are made to the Supreme Court. Appellants should seek legal advice before entering the appeal process. As a general rule, appeals must be made within 28 days of the judgment date [LCR r.37.04]. Beyond that time appeals will only be heard in exceptional circumstances and with the permission of the Supreme Court. An appeal against a decision made in a small claim proceeding may only be made on the basis of an error of law [LCA s.19(1)].

After the hearing

A creditor who obtains judgment against a debtor has a right to be paid immediately after the proceedings. Where a debtor cannot or does not pay, the creditor can use court processes to enforce the judgment (see Making a debtor pay below).

A debtor unable to pay the full amount of the judgment debt at once can ask the court for an instalment order (see Instalment orders below).

A private agreement with the creditor will save costs, but is no guarantee against legal proceedings to enforce the debt. A formal agreement with the creditor filed at court may be wiser in the long run. A formal agreement prevents both creditor and debtor from taking other action as long as the agreement is complied with.

A debtor should demand and keep receipts for payments made. If a creditor takes payments or continues proceedings to enforce a judgment as if there had been no payment, a debtor should seek a stay of enforcement, which suspends the judgment, and request that the enforcement order be set aside, using the receipts as proof of payment.

Making a debtor pay

In the NT a person can't be imprisoned for failing to pay a debt [LCA s.23].

A creditor who wants to use a court action to enforce a Local Court judgment can use only the procedures described in this section.

Within 12 years of the date of judgment [LA s.15], a creditor wishing to enforce a judgment may apply for one or more of the following orders:

• an instalment order
• an examination summons
• a garnishee order
• a warrant of seizure and sale against the goods of the debtor.

Each of these options is discussed below. After 12 years, a creditor must obtain the court's permission before proceeding to recover monies [LA s.44].

Instalment orders

Once a debtor comes to an acceptance that a judgment debt must be paid, paying regular instalments is generally the best method of repayment because it prevents the debtor from going further into debt. An instalment order acts as a stay of enforcement of the judgment [LCA s.27(3)]. As long as the debtor keeps up payments under the order, the bailiff can't seize the debtor's goods, and the creditor can't garnishee the debtor's wages (see Garnishment below) or issue an examination notice (see Examination summons and notice below).

Instalment orders can be changed if the debtor's financial situation improves or the debtor finds that they can't keep up payments. In these circumstances, it is up to the debtor to apply to the court for a variation in the instalment payments.

Instalment orders at a hearing

At a hearing of a claim, a magistrate may, in addition to any other orders, make an instalment order independently or at either parties' request [LCA s.27(2)].

Instalment orders after judgment

A debtor can apply to the court at any time after the judgment for an instalment order by filling out an Application for Order for Payment of Judgment Debt by Instalments (Form 50A) and an Affidavit as to the Judgment Debtor's Declaration of Financial Circumstances (Form 47C). These forms are available from the Local Court. The registrar can only consider an application after the debtor has filed it, along with an affidavit (see Legal documents, chapter 1), at the court where judgment was entered, and served copies, either in person or by post, on the creditor. The affidavit must include a list of the debtor's property, both goods and land, and income and outgoings, such as household or medical expenses, maintenance, other debts, insurance premiums and so on.

The registrar notifies parties of the order or refusal with an Order Relating to Payment of Judgment Debt by Instalments (Form 50C) or Notice of Refusal to Make Order Relating to Payment of Judgment Debt by Instalments (Form 50D). A registrar may refuse an order if the payments suggested by the debtor are ridiculously low given their income, or if insufficient financial information has been provided. The registrar can't change the terms suggested by a debtor, only accept or reject them, so it is important to suggest reasonable and realistic terms in any application.

Where the registrar grants the judgment debtor's application, the judgment creditor has 14 days from the date they are served with the order to seek a variation or cancellation of its terms by filing a Notice of Objection to Order or Refusal to Make Order for Payment, Variation or Cancellation of Judgment Debt by Instalments (Form 50E). The matter is then set down for hearing before a magistrate [LCR r.50.03]. The magistrate can affirm, vary or refuse the order. Similarly, a debtor who has had their terms refused by a registrar may have their matter heard by a magistrate who can vary or refuse them.

If a creditor doesn't lodge an objection to the instalment order within 14 days, the order becomes binding and can only be changed by either party in certain circumstances. A creditor may also apply for an instalment order. The procedure is much the same as it is when a debtor applies, but the creditor is not required to file a Form 47C. The creditor must file and serve a Form 50A and an affidavit stating the facts on which the application is based.

A debtor whose financial circumstances change or who is unable to meet the instalments can apply for a new instalment order by filing an Application for Variation or Cancellation of Order for Payment of Judgment Debt by Instalments (Form 50B), together with a Judgment Debtor's Declaration of Financial Circumstances (Form 47C). A copy of each of these documents should be served on the creditor. If the registrar or magistrate grants another order it takes the place of the earlier one.

A creditor can apply to the court for a variation of an instalment order, but usually only where there has been a substantial increase in the property or means of the judgment debtor.

Instalment order by agreement

The debtor and creditor may also enter a formal instalment agreement [LCR r.50.06]. A court form called an Instalment Agreement (Form 50G) must be completed, signed by both parties and witnessed. The form must be filed with the court that made the judgment within seven days from the date that it is signed by the creditor. The registrar will make an instalment order in the same terms as the agreement. The debtor can seek a new order at any time, but the creditor can do so only in the same circumstances as those that apply to variations of instalment orders after judgment.

Examination summons and notice

After judgment has been entered, the creditor may have the debtor examined by the court to ascertain their ability to pay the debt. An Application for Issue of Examination Summons (Form 47A) and an examination summons (Form 47B) is filed with the registrar [LCR r.47.01]. An examination summons (Form 47B) and a Judgment Debtor's Declaration of Financial Circumstances (Form 47C) must be served on the debtor at least 14 days prior to the 'examination day' [LCR r.47.03].

An examination summons requires the debtor to attend a hearing where they are questioned by the creditor or their lawyer or the registrar about their financial situation and ability to pay the debt. A debtor may be required to bring books or papers; such requirements are outlined in the summons.

An examination summons is set down before the registrar of the court nearest to where the debtor lives.

A debtor must complete the declaration of financial circumstances (Form 47C) and return it to the court and send a copy to the creditor not later than seven days before the hearing [LCR r.47.04]. Hearings are often brief so the debtor should come prepared with an itemised list of income, such as wages, pension and unemployment benefits, and weekly costs, such as rent, food, child care, medical and other expenses, together with documentary evidence and a workable proposal for paying by instalments.

Where part of the judgment debt has been paid, the debtor should bring along the relevant receipts. If a debtor can't attend the examination because of illness or other commitments, they should telephone the court office and request an adjournment. If granted, the debtor is notified in writing of the amended date and time.

A debtor is usually examined on oath or affirmation. Although the registrar usually examines the debtor, the creditor or their solicitor may carry out the examination. The registrar still presides over proceedings.

A debtor who seems to be avoiding examination and doesn't attend when summonsed may be arrested on a Warrant for Arrest of Judgment Debtor on Disobedience to Summons (Form 47F). In such circumstances, a creditor can apply to the court with an Application for Issue of Warrant for Arrest of Judgment Debtor (Form 47E) to have the debtor arrested by police, a private bailiff or a court bailiff and brought before the court for examination [LCR r.47.09]. A debtor can't be fined or imprisoned for failing to attend an examination hearing [LCA s.23].

Garnishment

A garnishee order is an order made to a third party to pay money owed to a debtor direct to the creditor. The third party is referred to as a garnishee. A debtor's employer or tenant are examples.

A creditor who has obtained a judgment, and knows that the debtor is owed money by another person, can apply for a garnishee order for the attachment of as much of that money as is needed to pay the amount owing to the creditor. A common garnishee order directs a debtor's employer to pay to the creditor a regular amount deducted from the debtor's wages. A debtor's bank account can also be garnisheed, but this usually involves a request for a once-only payment.

To obtain a garnishee order, a creditor must apply to the registrar of the court where the judgment was made (Form 48A or Form 49A) together with an affidavit in support. An application must be served personally on the debtor at least 14 days before the hearing of the application [LCR r.48.04].

When assessing the application, the court considers the amount a debtor needs to meet living expenses. Therefore, to protect their interests, it is essential that a debtor attends court. An order specifies the 'protected earnings', which is the minimum amount of earnings that apply before any deductions can be taken. The court also specifies the amount to be paid from the debtor's income to the creditor.

A garnishee order can have the following disadvantages:

• It can cause great financial hardship. When making an order, a registrar may be unaware of the debtor's circumstances. For example, a debtor with a large family to support would be more disadvantaged than a debtor with no children.
• It can affect a debtor's relationship with their employer. An employer could rid themselves of the inconvenience and expense of garnisheeing an employee's wages by dismissing the employee. To do so is an offence which carries a penalty of up to $10,000 [LCA s.22(8)], and a guilty employer may be ordered to reinstate the employee and reimburse them for lost wages [LCA s.22(9)]. The employer is, however, required to deduct an amount specified by the court from the debtor's earnings for expenses incurred in garnisheeing wages [LCR r.48.10].
• It can cause embarrassment and damage to a debtor's reputation. Some debtors are embarrassed by having their financial affairs revealed in this way. A garnishee order implies a debtor can't be trusted to pay off a debt. A debtor uncomfortable with this implication, but having difficulty paying the debt, would be wise to take the initiative by applying for an instalment order (see Instalment orders above).
• It can cause financial hardship to the garnishee. A garnishee order can be made against any person or company owing money to the debtor. Great distress can be caused by a garnishee order made against one of the debtor's friends or family members. A debtor who finds themselves in such a situation should apply immediately to the court to pay by instalments.

A person who receives an application to attach debts or earnings should not ignore it. The court can only make an order in the absence of a debtor if it is satisfied that the debtor has been served with a copy of the application, has had the opportunity to attend court and is employed and earning money. A debtor who attends the hearing can protect their position and have a say in the proceedings.

Some debtors change jobs to avoid continued garnishment. A creditor faced with this problem will often summons the debtor for another examination.

Warrant of Seizure and Sale

To recover a judgment debt, a creditor can ask the court to issue a Warrant of Seizure and Sale. This gives a bailiff the power to take possession of and sell a debtor's goods to recover money to pay the debt, plus any costs and interest. The bailiff generally explains this process during a visit to the debtor's home.

A Warrant of Seizure and Sale (Form 44A) is often used to frighten the judgment debtor into paying or coming to some arrangement with the creditor. A debtor should not be intimidated into hasty arrangements they can't afford, but should instead seek an instalment order immediately (see Instalment orders, this section). As long as payments are made, an instalment order prevents the bailiff from seizing the debtor's goods and the creditor from garnisheeing earnings or issuing an examination summons.

A debtor who does not owe the money or believes the amount is wrong should ask the bailiff for a stay of a few days to check the facts. If the bailiff does not agree to the delay, the debtor can apply for a stay of enforcement and/or an order setting aside judgment. This method may, however, prove too slow for a situation that requires immediate action.

At any time between the seizure of goods and their sale, a debtor can regain possession by paying the bailiff the amount owed plus the costs of seizing, advertising and arranging for sale.

Certain items can't be seized by the bailiff; the bailiff can only seize personal property belonging to the debtor. As a result, any property in possession of the debtor, but belonging to someone else, can't be legally seized. Items rented or on hire-purchase or those jointly owned should not be taken, neither should goods owned by a spouse or relatives. In addition, a debtor is entitled to keep essential goods needed for basic living and working, such as clothing and tools of trade [LCR r.44.03(1)]. Other personal property can be taken, such as money, furniture, television sets, radios, electrical appliances and cars.

Some examples of property that can't be seized by a bailiff are:

• a car still on hire purchase
• a television owned by the landlord to rented premises
• a hi-fi unit borrowed from parents
• a sewing machine owned by the debtor but used by another family member in the household in a dress-making business
• clothes, bedroom furniture or refrigerator
• tools of trade, professional instruments or reference books belonging to the debtor.

If the sale of the judgment debtor's personal property does not satisfy the debt, and if the warrant specifies it, the bailiff can sell any real estate belonging to the debtor [LCR r.44.03(1)(a)]. Personal goods must be sold before real estate unless the judgment debtor requests otherwise [Supreme Court Rules r.69.05(3); LCR r.44.05(3)].

A bailiff can seize goods without actually picking them up and taking them away. Often it is convenient to leave the goods at the debtor's house while a sale is arranged. The bailiff must leave a Notice Requiring Safekeeping of Seized Property (Form 44B) listing the items seized in a prominent position on the goods themselves or on the property where they were seized [LCR r.44.06].

If the debtor has little or no property with which to pay the debt, the warrant may remain in force for 12 months [LCR r.43.04] from the date of issue. The creditor may, during this period, apply to have the warrant extended for a further 12 months.

If the debt remains unpaid, a creditor can continue to take enforcement action for up to 12 years after judgment. After 12 years, the creditor must obtain the leave of the court before taking further enforcement action [LA s.44].

Seized property must be advertised for sale in a local newspaper and sold at public auction. If the bailiff tries to seize property not owned by the debtor:

• the debtor and/or the owner (if present) should immediately insist that the goods are not owned by the debtor
• any documents or receipts showing ownership should be shown to the bailiff
• the debtor should advise the owner that their property is being/has been seized
• the bailiff may be liable to pay the owner damages for interfering with the goods - if mention is made of this fact to the bailiff, they may be persuaded not to seize the goods in dispute, otherwise, court proceedings should be started immediately (known as interpleader proceedings).

When executing a warrant, bailiffs have rights and obligations that are not prescribed in the court rules but part of what is known as the common law. Some of the obligations not currently prescribed in the court rules are:

• to act reasonably in the interests of the creditor and the debtor
• to obtain a reasonable price for what is sold
• not to accept an unreasonably low bid (to do so may give a debtor a right to claim damages from the bailiff).

What if a debtor no longer lives in the NT?

Under the Service and Execution of Process Act 1992 (Cth), a judgment (debt or otherwise) made by a court in one State or Territory of Australia can be registered with the equivalent court in any other State or Territory. At the time of printing this process cost around $30. So if a debtor leaves the NT and moves to another State or Territory, an NT creditor can arrange to have the judgment enforced there. Similarly, if a debt arose in another part of Australia and the debtor now lives in the NT, a creditor can enforce that debt (see Serving a Statement of Claim, this section).

What if a debtor tries to leave the NT?

Under the Absconding Debtors Act (NT) (ADA), a creditor who suspects that a person who owes them money is about to leave the NT may apply to court for a Warrant of Arrest [s.5]. The court will grant a warrant if it is satisfied that there are reasonable grounds to believe that [ADA ss.4(3), 5, 6]:

• the debtor owes a debt to the applicant
• the debtor is about to leave the NT
• failure to arrest the debtor would affect an applicant's prospects of recovering a debt
• the debt is for wages or is for an amount not less than the prescribed amount (at the time of publication the prescribed amount was $500).

The debtor will be arrested and brought as soon as practicable before the court that issued the warrant. A creditor can also apply for an order restraining the debtor from transferring property out of the NT in an effort to avoid paying the debt [ADA s.13]. If the court is satisfied that the debtor was about to abscond and/or transfer property, it can make orders [ADA s.16], including:

• that the debtor undertake (with or without a bond) not to leave the NT or a particular area of the NT until the debt is paid
• that, while waiting for the debt to be finalised, the debtor pay money to the creditor or court
• that the debtor be imprisoned.

If a debtor is conditionally released from custody and fails to comply with the conditions on which they were released, they may be arrested and taken to court again [ADA s.18]. A debtor can appeal any orders made under the ADA to the Supreme Court [s.20].

Mortgage Defaults

Definition of default

A default may occur under the following conditions:

• When the borrower, called a mortgagor because they take out the mortgage, fails to pay any instalment on time or within a set period set by the mortgage document. This might be, for example 7, 14 or 21 days.
• A default can also occur when a mortgagor fails to repay an instalment on a due date, for example, a lump sum, or fails to pay a loan in full if the loan has a set date for repayment.
• A default can also occur when a mortgagor breaches the terms and conditions of the mortgage loan agreement, for example, fails to insure the property, fails to pay rates or land taxes, or the mortgagor enters into an arrangement with creditors or is made bankrupt.

What happens if a default occurs

In the event of a default by a mortgagor the lender, called the mortgagee, will issue a Notice of Default advising the mortgagor that the mortgagee will take certain actions within a period of time if the default is not remedied.

For example, if it is a repayment default, the procedure would normally be a reminder letter, a formal notice of demand, then in the event that the default is not remedied recovery proceedings (proceedings to sell up the security and recover the debt). Recovery proceedings might involve proceedings in the Supreme Court for possession of the property.

If the mortgagor is cooperative the mortgagee may allow them to stay in the property while they have entered into possession of the property.

In most cases an action for possession of the property will need to take place in order for the mortgagee to have total control of the sale process without interference from the mortgagor.

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It should be borne in mind that the mortgage document will contain a clause that says that all recovery costs will be at the expense of the mortgagor.

Order for possession

A judgment for possession of land may be enforced by warrant of possession [SCR 66.03(a)], or committal or sequestration. The former is commonly applied to defaults on mortgages.

Upon gaining the warrant for possession the court normally allows the mortgagor certain time to vacate the premises after service of the order. If the mortgagor fails to comply the court's bailiffs will enforce the orders upon application by the mortgagee.

Process after possession

The process after possession is obtained will usually be that the mortgagee will either instruct or call for submissions from registered real estate agents and depending upon the circumstances will either commence a sale of the property by private treaty or by auction.

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Prior to the auction the mortgagee will obtain several market valuations from registered valuers to ensure the integrity of the sale process. This is because there have been decisions by the courts that require a high degree of accountability in the mortgagees in this phase of the process and there is an implied requirement of utmost good faith in the mortgagee toward the mortgagor.

The decision to accept an offer or not accept it is entirely at the discretion of the mortgagee and the mortgagor is excluded from this process.

Once property is sold

Once a sale is completed the mortgagee has a duty to account to the mortgagor for the balance of the sale proceeds after repayment of the borrowed sum, outstanding interest, legal costs, real estate valuer's and sundry expenses.

Equity of redemption

While the legal ownership of the property will always reside with the mortgagee there will always be another component to the legal rights referred to as equitable rights.

At all times, right up until the sale agreement is signed or the hammer falls, the mortgagor has a right to pay the amount owing in full and take the property back from the mortgagee. This right is referred to as the equity of redemption.

Publication of Debt

One of the most embarrassing and difficult repercussions of debt is the publication of information about debtors.

The impact of this publication is that it can prevent access to finance and can have long lasting effects upon a debtor's access to credit for a wide variety of need in life. These might affect telephone connection, connection of power and water, taking leases on premises, applications for loans and even applications for jobs.

Where are the listings?

Credit reporting organisations may list information on debtors and are empowered under section 18 of the Privacy Act 1988 (Cth).

Information on persons who have gone into bankruptcy is listed on the National Personal Insolvency Index (NPII) which may be accessed for a small fee through various providers. These may vary from time to time but are promoted by the Insolvency Trustee Service Australia (ITSA) on their website.

There are some trade gazettes - some associated with chambers of commerce - which publish details of judgments against debtors for the information of their members.

What is listed?

Listings include bad debts. Details of the debts may be obtained from collection agencies which will lodge details of the debt with the listing firms, or from court lists from which the credit listing firms will obtain details of persons being sued and who have had judgments made against them.

It must be pointed out that it is an offence to lodge a default until the debtor is over 60days in default [Privacy Act s.18].

Lists also include details of the party's inquiries after finance. This may have implications (see below). Directorships are also listed and if there are any noteworthy matters concerning any relevant company this will be provided.

Bankruptcies are also listed and this entry gives prospective lenders a long time to consider the prospective debtor a lending risk. Bankrupts should be aware that making application for credit while bankrupt can easily be detected via these listings and is an offence.

Inquiries concerning a person's creditworthiness

Inquiries may be made by persons who subscribe to the listing agency. Individuals may also obtain a copy of their file for a small fee either by mail or over the internet.

Lenders and providers of credit may make inquiries in the course of deciding whether to lend to a party. If there is a listing of the applicant it is usual that this will considered serious and will probably lead to a refusal of credit.

It is often suggested that people looking to borrow should shop around. If shopping around means making multiple applications for loans and picking the best on offer this could lead to adverse consequences. If the credit file shows many inquiries in a period of time it may be taken as an indication that the applicant has been refused credit elsewhere.

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Wrong information and time limits

Listings can be challenged. It is possible to have a note placed on the credit file explaining the debt and circumstances. It is also possible to have the entry removed, usually by paying the recorded debt. For example, listing may occur because, due to a change in address such as moving interstate, a debt may have been unknowingly accrued.

Time limits apply to entries and entries for ordinary debts will be removed after five years. In the event of a bankruptcy the record is not removed until after seven years.

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