Temporary Update: Bankruptcy Notices and COVID-19
On 25 March 2020, the minimum amount for a bankruptcy notice increased to $20,000 and the time for a debtor to respond to a bankruptcy notice increased to 6 months.
These are temporary measures to ease the burden on individual debtors during the pandemic, and are anticipated to last for 6 months.
If you take no action or do not reach a satisfactory agreement and have not filed a defence within 28 days after you receive the claim, the creditor can ask for judgment on the debt without you being involved or knowing that it has happened. This is called default judgment because you have not answered the claim with a defence.
Judgment can also be obtained if you file a defence, but do not go to Court for the directions hearing or trial, or if you lose your case after a hearing or trial (your defence is unsuccessful).
The Court enters judgment on your debt which means that you legally owe the money. You will not be notified that this has happened. The creditor can now take other action through the court to recover the debt, which is called enforcement.
How do I apply to set aside a default judgment?
If default judgment is entered against you in relation to a debt, it is possible for you to subsequently apply to the court to set aside the judgment. You may apply to have the judgment set aside by filing an Interlocutory Application (Form 77) and supporting Affidavit (Form 12), setting out the reasons why judgment should be set aside.
Before the court decides if the default judgment should be set aside, you must convince the court that you had a valid reason for not filing the defence within the 28 days, and that you also have good grounds for defending the claim.
There are a number of grounds on which you may apply to have judgment set aside, including:
When making the application to set aside the default judgment, the you must seek the courts permission (leave) to file a Defence (and/or Cross-Claim). You may wish to include a copy of your draft Defence (and/or Cross-Claim) as supporting documents to the Interlocutory Application.
If you wish to admit the creditor's claim, then an application to set aside default judgment may not be appropriate. Legal advice should be sought before making an application to set aside default judgment.
What can the creditor do now?
The creditor can now take enforcement action. They can:
The creditor can also go to the Federal Court to make you bankrupt, although this is unlikely unless you own assets such as a house or you have a high income.
All of these actions can have a huge impact on you and your family, particularly if you have assets. Get legal or financial counselling advice to understand you options.
The first enforcement action the creditor takes in the Magistrates Court is a summons to the debtor to appear at an Investigation Hearing. [Uniform Civil Rules 2020 r203.4] If the judgment is for less than $12,000 and does not arise out of the carrying on of business, this is the first enforcement process that the creditor is allowed to take, unless they make an application.
The purpose of the investigation hearing is to determine whether you can pay the debt and if so, how you will pay it. It is not a chance to deny that you owe the debt. If you deny that you owe the money, get legal advice as soon as you receive the claim.
Some people may find the court process confusing and stressful. There are several important things for you to know before going to court. The process and your options are discussed in more detail below see Investigation Summons.
Take your goods – Warrant of Sale
The court has the power to authorise the seizure and sale of your property (real estate and personal property). This means a sheriff will come to your house to make a list of things that could be taken and sold to pay your debt. They cannot take items that would be protected in bankruptcy such as household goods and furniture, personal things, a car (valued under a certain amount) and tools of your trade (under a certain amount).
Note: If you have a car or tools of trade worth more than the protected amount, the sheriff could take the item/s and apply the whole amount of the sale proceeds including the protected amount to the debt.
After the amount of the claim, plus court costs and interest are taken out of sale proceeds, any remaining amount will be given to you.
If the debt is less than $12,000 the creditor is required to issue an investigation summons first, but if you fail to appear at court or miss two or more payments, the creditor can issue a warrant of sale without further notice to you.
A legal charge is placed on some item of your property, typically land or property. It does not mean that a creditor will obtain their money immediately, but they will retain a legal charge over your assets which give the creditor a legal claim over some or all of the proceeds of the sale of those assets when you sell them. (See Uniform Civil Rules 2020 rule 203.14]
Force you to become bankrupt
From 24 March 2020, the minimum amount for issuing a bankruptcy notice was increased to $20,000 in response to the COVID-19 pandemic. If the judgment debt against you is over this amount, and you fail to respond to the bankruptcy notice within 6 months of the issue of the notice, the creditor can start the process of applying to the Federal Court to have you declared bankrupt.
The creditor is unlikely to do this if you do not have assets such as a house or car as they will have to pay an initial fee. You may choose to become bankrupt voluntarily (see 'Paying a debt' and Bankruptcy).