There are laws about the behaviour creditors and debt collectors can engage in when pursuing you for a debt.

Debt collectors must be licensed and they are not allowed to harass or threaten you. If the behaviour is serious and you feel you are being harassed or threatened you can make a report to Consumer and Business Services on 131 882 (who deal with licencing of debt collectors). You can also ring the Police Assistance line on 131 444

What a creditor/debt collector cannot do

See Fair Trading Act 1987 s 43

See ASIC's MoneySmart information Dealing with debt collectors

See also ASIC and ACCC's Debt collection guideline: for collectors and creditors

Do I have to pay for debt collection fees?

Often creditors or debt collectors will try to include their costs in the amount being recovered. A creditor or debt collector can only claim debt collection fees from you where you have agreed to them specifically prior to entering into your contract. For example, where you have agreed that you will be liable for the cost of debt collection in the event of default. This is often the case with credit contracts.

If you are unsure as to whether you agreed to pay debt collection fees, seek legal advice.

Financial Counselling

A financial counsellor can help you with negotiations with creditors, and give you options regarding dealing with your debts. Their services arefree. The National Debt Helpline number is 1800 007 007.

Debt collectors must be licensed and they are not allowed to harass or threaten you. If you feel you are being harassed or threatened you can make a report to Consumer and Business Services on 131 882 (who deal with licencing of debt collectors). As a last resort, assuming that there are threats of physical violence, you can also ring the Police Assistance line on 131 444.

You may be able to dispute a debt in certain circumstances.

The following may provide defences to a claim against you:

as an example, you agreed to the contract but you:

You need to ensure that you have as much information as possible to prove your defence, although you may not have everything in writing. If you are relying on what you were told, make a note of as much detail as you can remember. Sometimes you will be asked to recall that information many months or even years later and it is much easier if you have a record.

Statute Barred Debts

A creditor is legally barred from pursuing an unsecured debt if they have failed to do so within six years of the debt arising. If the claim against you is in relation to a loan, the date from which the six years runs is the date of the first missed payment, not the date of the loan.

Any action on your part may affect this limitation period. For example, if you have made any payments during this time then the six year period begins again. The same is true if you have made any communications in writing admitting to owing any money or a court order has been made in that time against you. If you are unsure about whether this is the case, seek legal advice before you speak to your creditor or make repayments.

Where a debt is secured by a mortgage over property the period during which a creditor can make a claim for payment is 15 years.

Be aware that you may incur additional costs if the Court finds that there was no basis for questioning the debt.

If you think you might have a defence you need to get legal advice immediately. You will only have a period of 28 days from the date you received the claim to file your defence. Get help with working out whether or not your defence has merit (e.g. is it a good defence) and how to set it out.

If you do not think that you should have to pay a debt it is important that you talk to the creditor or get help.

If you are unable to come to an agreement with the creditor you may be able to organise mediation or if the creditor is a member of an External Dispute Resolution Scheme, you can lodge a complaint with the scheme. Not every organisation is a member of an EDR scheme so it is best to get legal advice about your problem. For more information, see 'External dispute resolution'

How can External Dispute Resolution (EDR) schemes help?

EDR schemes help people resolve problems with some businesses.

If your debt is from one of the following businesses there is an EDR scheme that could help you sort out your debt (even if the debt has been passed to a debt collector). These businesses are required to be members of the EDR schemes:

The scheme will look at your complaint by considering the facts provided by you and the business. The scheme may even help you to present your complaint. This does not mean that any complaint will be decided in your favour.

The scheme will get the business to provide a response to your issue and request, and if you are still not satisfied will look into your matters. They will refer to the law and good industry practice, and what is fair and reasonable in all of the circumstances to decide on the matter.

You have nothing to lose by going to EDR and they will make the business listen and respond to you or provide you with financial hardship options. In the case of a legitimate creditor mistake EDR can enforce a change. However, they cannot force companies to waive legitimate debts, fees and charges on the basis of financial hardship, althought they can make recommendations about dealing with customers who are facing financial hardship.

What are the benefits of using an EDR scheme to help with a debt problem?

Going through an EDR scheme is free for consumers. EDR is independent, easy to access and outside of the court system.

Can a business or creditor take court action or other legal action if I have taken a problem to EDR?

No. While your matter is with the EDR scheme the business, creditor or debt collector cannot take enforcement action (e.g. repossess secured goods or take court action).

What if we reach an agreement?

Where an agreement is reached about the amount of money owed it is possible to make a court enforceable payment agreement recording the amount owed. It is recommended you see a financial counsellor to make sure that the new payment plan you are about to agree to is realistic in your financial circumstances.

When can I take a matter to EDR?

You can take an issue to EDR anytime after you have tried to talk to the creditor about your problem and are not happy with their response or did not get a response. Even if the business has started court proceedings, you can still go to EDR. However, you cannot raise an issue with EDR if judgment has been entered, see 'Judgment'.

What do I have to do to take a matter to EDR?

Talk to the business first. It is a requirement that you try to resolve the issue with the business first, before going to an EDR scheme.

Contact the business to discuss your issue, and ensure that they are given all the information. If you cannot resolve the issue, or the business refuses to agree to your proposal, you should lodge a dispute with the relevant EDR sheme.

Contact the EDR scheme

Contact the EDR scheme that relates to your creditor and debt.

If you are still uncertain or need more help contact a financial counsellor.

What if the creditor or business won’t help me?

You can complain to one of the External Dispute Resolution schemes (EDR).

If the business is not in an EDR scheme, you could try a community mediation service. If the business has already served you with a Final Notice (Form P1) or commenced legal proceedings against you (Form 1 or Form 1S), mediation is available through the Magistrates Court, which provides another way to settle your dispute.

I owe the debt and the amount is correct – What can I do now?

If you have considered the points earlier and agree that you owe the money, you have some choices. It is best to contact the creditor as soon as possible even if you cannot pay. Ask the creditor to hold action on the debt while you work out your options, set out below. Then once you are clear about your options you can get back to creditor with an offer or request.

Your options include:

There is more information about each option below. First though and before you decide what to do work out your financial position and read the information below 'What if my only income is from a Centrelink payment?' and 'What if I am in financial hardship?'

How do I work out what my financial position is?

Having a money plan for your average income and expenses (e.g. average for a fortnight or month) will be very helpful. It can give you a snap shot of your situation, what is available for your most important or essential expenses and what is (or is not) available for your debts.

For useful money planner, visit the Money Smart website.

If you need help to work out your income and expenses or options contact a financial counsellor on 1800 007 007. They will also help with negotiations with your creditor and can offer you alternative options.

What if my only income is from a Centrelink payment?

Your Centrelink income is intended to pay your living expenses, and is generally not available to non-government creditors.

A creditor or debt collector cannot make you repay a debt from a Centrelink payment if you do not agree to do so. They must also make sure that they do not mislead you into believing you must make a payment from a Centrelink payment.

A court cannot make you repay a debt from a Centrelink payment if you do not agree to do so.However, Centrelink and childsupport debts can be taken from you Centrelink payments. You need to also take into account any Court fines.

If the debt is linked to an ongoing service such as electricity, phone or rent, the creditor may be able to take action other than making you pay from your Centrelink payment. This could include disconnecting your service.

If you have assets (e.g. your house or car) the creditor can take court action to get a warrant of sale on assets or put a charging order over your house (see 'Enforcement'). Note that assets do not include basic household goods such as your fridge, washing machine or household furniture.

What if I am in financial hardship?

If you cannot meet regular repayments on debts such as a personal loan or home loan for a short time (e.g. because of temporary illness, unemployment or relationship breakdown) you can ask the credit provider for a hardship variation. Many businesses including credit, energy, phone and internet providers, insurance companies and local councils have staff to assist customers in financial hardship. There are laws or other requirements for these businesses to listen to their customers who say they are in financial hardship and provide them with special arrangements to assist them while they remain in financial difficulties.

Remember to ask to speak to someone about hardship if this is the case. You need to tell the business everything about your situation. If they still do not agree to help you with your hardship, ask to speak to a supervisor or other person.

What can I say to a business if I cannot pay and am in financial difficulty?

Contact the business and:

Short term arrangements may include postponing, reduced payments or even make no payment for a period of time (up to 3-6 months). Other financial difficulty options that may assist include paying by instalments (e.g. fortnightly repayments of energy bills or council rates) or organising payments to line up with your pay day. Avoid borrowing more money to deal with short term debt - it is better to arrange things around your current income rather than get into further difficulties.

What if my situation does not improve and I cannot return to normal or full payments?

If your financial situation does not (or is not likely) to improve in the short term (three to six months), you may wish to consider other options. These might include reducing your expenses, selling an asset, requesting a waiver, or as a last option filing for bankruptcy.

Seek assistance from a financial counsellor to help discuss your hardship options with the creditor.

For more information on bankruptcy go to the Australian Financial Security Authority (formerly ITSA) website (www.afsa.gov.au) or phone 1300 364 785

Ask for waiver of the debt

You could ask for a waiver if you cannot make any payment and particularly if you are on a low income such as a Centrelink pension or benefit, you have not assets (e.g. do not have a mortgage or own your own home) and your position is unlikely to change. See a financial counsellor for assistance on how to ask for a debt waiver.

Repay the debt in full

By paying it this will mean the debt will not increase because of court costs and interest being added. Do not do this if you really cannot manage to pay without causing more debt or financial hardship to you or your family.

Offer a reduced lump sum to finalise the debt

Sometimes a creditor may agree to accept a reduced lump sum payment. A debt collector may have bought your debt from the creditor for a reduced amount and will accept a lower amount to pay it out. This may be an option but think about whether you can really manage the payment.

Negotiate a repayment arrangement

You can try to negotiate a payment arrangement with the creditor or debt collector by asking to pay at a later date, payment by instalments or reducing the regular payments. However make sure that your repayment plan is realistic – do not commit to a plan if you think you might still have trouble paying. Do not be afraid to tell the creditor if you cannot make any payments.

If the creditor does not respond to your request, and continues to threaten legal action, you may be able to take the matter to External Dispute Resolution. Remember your options are limited with debts linked to ongoing services (such as current energy account or council rates).

Section 182 of the Local Government Act 1999 provides that local councils may, if satisfied that a ratepayer is suffering hardship, postpone payment of rates on terms. If you are struggling to pay your rates, ask the Council for help with a payment arrangement or even postponement until you can get back on track.

Do nothing

This can seem like the easiest option. However, if you ignore a debt, you will probably still get the calls and the letters and eventually a court claim, whether you owe the money or not. The debt will also get bigger with costs and interests added once court action starts. Your credit record is likely to be affected and may affect your ability to obtain credit in the future.

File for bankruptcy

Bankruptcy is a way of saying “I can’t pay my debts!” The general effect of bankruptcy is to wipe the slate clean, however in most cases it should be considered as the last resort.

The advantages of bankruptcy include:

The disadvantages of bankruptcy include:

If you need talk about your options including bankruptcy seek help from a financial counsellor. See also the chapter on Bankruptcy.

What about my credit rating?

For further information, see the section CREDIT RATINGS.

A creditor can take steps to recover a debt from you through the formal court process. Debts of less than $100,000 are recovered through the Magistrates Court of SA. If the debt is greater than $100,000 it can be recovered in the District Court of SA.

A creditor is required to give notice of an intention to sue. If you don’t get notice of the claim, the creditor may not get all of the additional costs added to the amount owed. Notice is given in the form of a pre-action notice of intention or a Final Notice (Form P1). This notice gives you 21 days in which to try and resolve the matter or seek mediation.

If a creditor (the ‘Applicant’) serves a pre-action notice of intention on a debtor (‘the Respondent’) it must include:

[see Uniform Civil Rules rule 332.2]

The debtor (‘the Respondent’) is then required to serve a written response on the creditor (‘the Applicant’ which includes:

[see Uniform Civil Rules rule 332.3]

If, however, the creditor serves a court issued Final Notice (Form P1) on the debtor, then the debtor is not required to respond in writing to the debtor. [r 332.3(3)]

If you do not respond the creditor can then choose to file a Claim (Form 1 Claim or Form 1S Statement of Claim uploaded with Claim for a claim under $12,000). The creditor will pay a fee to the court which is then added onto the claim amount. There are other fees that can also be added. The court does not check that the details of the claim are true. It will be up to you to accept the claim or not - for further information see Disputing a debt.

Do not ignore the claim because you may lose important rights. Read the details carefully. Ask for help if you do not understand anything in the forms or you are not sure what you can do now.

You have 28 days from the date the claim was given to you to dispute the debt or reach agreement with the creditor regarding payment. After that a judgment about the debt may be made and the creditor can take enforcement action against you through the court.

Judgment about the debt can happen without you being involved. If you do nothing judgment against you will be “a rubber stamp” – it will be automatic and you will not know it has happened (see 'Judgment'). You will then receive another notice from the court to enforce recovery of the debt. If you wish to set aside a default judgment made against you, please see Judgment and Enforcement Action.

[see Uniform Civil Rules 2020 rule 143.2]

How will I get the court forms?

The claim will be served (delivered) to you by an authorised person working for the creditor including the Sheriff and can be delivered to you almost anywhere (e.g. at home or work). You may also get the documents delivered by express post or email if you have been communicating with the creditor regularly by email. The creditor or their agent will do an affidavit saying how the claim was served on you. If there are doubts about what happened, you can ask for a copy of the affidavit.

What are my options?

Important: read the next section carefully before deciding what you will do next.

I don’t think I should have to pay

There may be legal reasons why you do not have to pay some or all of the debt. You can dispute all or part of the amount owing or you may be in financial hardship (see 'Disputing a debt' and 'Paying a debt'). You still have these options, but must act within 28 days to respond to a claim, and file a defence or cross claim (including a counter claim).

You could also take the matter to an External Dispute Resolution (EDR) Scheme if the creditor is the type of business that must be a member of an EDR scheme (see 'External dispute resolution'). It is a free service. An EDR process will stop the court action whilst the disputer is being investigated. Not all creditors are members of EDR schemes.

If there is not an EDR scheme, you can stop further action by the creditor including filing a defence or cross claim (including a counter claim) if you don’t think you owe the debt, or making an arrangement to pay. You can get legal or financial counselling advice about your options.

You can call our free Legal Help Line on 1300 366 424.

You must respond to the claim within 28 days of the date you received it. If you don’t respond, the creditor can ask for judgment to be entered on the debt.

The creditor has a number of options to enforce a judgment debt against you. More information about what happens when a judgment debt is enforced is set out below.

How do I file a defence or counterclaim?

To file a defence, you fill in a Defence (Form 51 or 51S) and take it to your nearest court within 28 days of receiving the Claim (Form 1 or 1S). You can fill in a Form 51S electronically through the CourtSA website.

Your defence must be legitimate and must be able to be proved see 'Disputing a debt'. Get free legal advice about what you should say in your defence.

Remember that if you admit the debt, but simply cannot afford to pay it, you are better off negotiating a payment arrangement. Being unable to afford to pay is not a defence to a claim, so if you are having financial difficulties consider seeing a free financial counsellor.

You risk extra legal costs if you cannot prove what you say happened, and the Court rejects your defence following a hearing. It is therefore important to get advice on whether or not your defence is valid.

If the creditor owes you money, you may be able to file a cross claim (including a counter claim) at the same time as your defence (Form 61 or Form 61S). You need to pay a filing fee to lodge a cross claim, but not to file a defence.

You need to get legal advice about whether or not you have grounds for a cross action, or if it is a defence. An example of a cross claim might be where you have not paid for building work, but the building work is defective and has caused you other loss.

What happens after I file a defence or other form to dispute the debt?

Once you have filed a Defence or other application with the court you will receive a notice telling you to attend a Directions Hearing. You must attend this hearing.

If you do not attend within 15 minutes of the appointed time judgment may be decided against you without anything else happening. [see Uniform Civil Rules rule 145.3(1) for Magistrates Court hearings] The creditor must attend the hearing or risk the case being struck out.

At the directions hearing, the Magistrate or Registrar will listen to each party briefly and work out whether there is any possibility of a resolution. The Magistrate or Registrar will encourage both parties to come to an agreement and will provide some assistance to help this happen. If the matter can’t be resolved the Magistrate or Registrar will explain the next steps.

I owe the debt – what can I do now?

You can pay in full

Payment in full is an option but remember that the creditor will probably also want you to pay their legal costs. The court process stops if you pay in full.

You can still negotiate with the creditor about making payments

You can still make payments or continue to negotiate directly with the creditor even after you receive the Claim (Form 1 or Form 1S) from the court. If you wish to dispute the debt, get some legal advice. Depending on the nature of the debt, you may be able use an external dispute resolution scheme (see 'Disputing a debt' and 'External dispute resolution')

What if I ignore the Claim (Form 1 or Form 1S) and do nothing?

The court will assume the creditor’s claim is correct. The creditor will ask the court to enter default judgment on the debt. This means the creditor can take enforcement action against you to recover the debt. The original amount claimed, plus costs, plus interest in some cases, becomes the amount you owe.

Will I go to prison?

You cannot be imprisoned for failing to pay your debts. However, the court can imprison you for up to 40 days for disobeying its orders, such as refusing to attend court or refusing to pay if you have the money. Imprisonment for breaching a court order is a penalty for showing contempt to the court and is not an alternative to payment of a debt. However, being imprisoned is rare and you will be given plenty of chances to rectify the problem. You will not be imprisoned if the reason for not being able to pay is financial hardship.

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.

Investigation Notice

The creditor may serve you with an Investigation Notice [Form 140] requiring you to answer a questionnaire and provide information about your means to pay the debt within 28 days [Enforcement of Judgments Act 1991 (SA) s 3A and Uniform Civil Rules r 203.3A].

If you are able to negotiate a payment arrangement, this can be lodged with the court to make the order using a Form 142 Consent Order for Payment [Uniform Civil Rules r 203.5].

If no payment arrangement is negotiated, the creditor can lodge an Application to Enforce Form 141 in the usual manner.

Investigation Hearing

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 r 203.4]. 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.

Garnishee Order

The court has the power to make an order that a debtor's money held by a third party such as their bank or employer may be paid to the judgment creditor. From 18 September 2023, it is possible for the court to make an order garnishing the salary or wages of a debtor without the debtor's consent. However, the debtor's net weekly salary or wages after tax must not be garnished such that the debtor is left with less than 90% of the weekly national minimum wage under the Fair Work Act 2209 (Cth), and the court must consider it appropriate [Enforcement of Judgments Act 1991 (SA) s 6].

Take your goods – Warrant of Sale

If the debt is $12,000 or less, the creditor is required to issue an investigation summons first, but if you fail to appear at court or miss 2 or more payments, the creditor can issue a warrant of sale without further notice to you [Uniform Civil Rules 2020 (SA) r 203.2(1)].

The court has the power to authorise the seizure and sale of your property (land 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 personal things,such as 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.

The creditor can have a warrant of sale issued against your house if there is available equity (that is any money you owe on a mortgage is less than the value of the house). However, where the debt is $12,000 or less, a warrant of sale against your house (land) may not be issued unless a warrant of sale of personal property (goods) has first been issued, and has not satisfied the debt [r 203.2(4)].

Charging Order

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 1 January 2020, the minimum amount for issuing a bankruptcy notice was permanently increased to $10,000. If the judgment debt against you is over this amount, and you fail to respond to the bankruptcy notice within 21 days 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. Please refer to Paying a debt and Bankruptcy for more information.

A judgment creditor has several options to make you pay the debt. The most common is the investigation summons, which is explained in detail in this section.

What is an investigation summons?

An investigation summons is a court document requiring you to attend court. This summons can only be issued if the creditor has obtained a judgment against you. The summons will be served on you personally by the Sheriff. It is very important to attend the hearing on the date and time listed on the form.

The purpose of the hearing is to look at your financial position to determine whether you are able to pay the debt and if so, how you will pay it [see Enforcement of Judgments Act 1991 s 4].

A financial counsellor can assist you in filling out the form showing your income and expenses, which is included with the Summons. The services of a financial counsellor are free, and they are very experienced at doing this work. You can contact a financial counsellor on 1800 007 007. Try to do this before you go to Court, so that you are not trying to think of your expenses and income under pressure.

What if I do not attend the hearing?

If you do not attend the hearing within 15 minutes of the appointed time, the creditor may ask the court to issue a warrant of apprehension. Then a Sheriff will contact you to arrange for you to attend the court for a further hearing. It is not like a criminal arrest, but you will be required to attend Court and additional costs are added to your debt.

If you cannot attend Court because of illness or other unforeseen circumstances, you need to contact the Court in advance. However, putting off going to Court will not address the problem and the debt will not go away on its own. You are better off going to Court and trying to work out what is feasible to pay the amount owing.

I don’t owe the debt. What can I do?

As noted on the summons “You may apply to the trial court to set aside this judgment if you have an arguable case.....” This means judgement was entered against you because you did not file a defence within 28 days of the service of the claim. If you now wish to dispute the debt you can talk to the court registry (phone 8204 2444). They can tell you which forms to fill in to get the judgment set aside so that you can file a defence.

However, you need to explain to the Court why you did not file your defence within the required time as well as demonstrating that you have a reasonable basis for defending the claim. This means that your defence must be valid, and not just because you cannot afford to repay the money owing. [See Uniform Civil Rules 2020 rule 142.12].

If you are successful in setting judgment aside, you need to file a defence within the time directed by the Magistrate and then attend all further hearings, including your trial.

Call our Legal Help Line on 1300 366 424 for free legal advice.

See 'Disputing a debt' and 'Being taken to court'.

What is proof of service?

For enforcement procedures the court requires proof that the summons has been served on you personally by the Sheriff [see Enforcement of Judgments Act 1991 s 4(3)].

This is the first I have heard about this debt. What can I do?

You should have received a Claim (Form 1 or Form 1S) at least 28 days (but this period is usually much longer) before receiving the Investigation Summons from the Court.

Phone the court registry on 8204 2444, quote the action number (top of the summons) and ask for details regarding the service of the claim, and the address where it was served.

You can ask to look at the Affidavit of Proof of Service form to find out how the creditor served you, if the claim did not reach you. Ask for access to the online file to look at the documents filed by the creditor in your case.

You may be able to have the judgment set aside if you have a reasonable basis for defending the claim and you can explain why you did not know about it.

I owe the debt. What can I do?

It is not too late to try and negotiate a payment arrangement with the creditor before going to Court on the Investigation Summons. A free financial counsellor can help you work out a budget and negotiate with your creditor. If the creditor or debt collector will not talk to you or wants more than you can afford then you will have to go to Court.

What happens at an Investigation Hearing?

The purpose of the hearing is to look at your financial position to determine whether you are able to pay the debt and if so, how you will pay it.

Unless the Court otherwise orders, any investigation summons in the Magistrates Court must be returnable at the Court nearest to the place of residence of a judgment debtor or witness who is an individual, or a registered or principal office of a judgment debtor which is not an individual. [Uniform Civil Rules rule 203.4(4)]

This hearing is called a ‘closed court hearing’ which means that when you enter the courtroom the only other people in the room will be court officials and the creditor. Sometimes small business or individual creditors will represent themselves at court. Larger businesses will pay a paralegal to do this for them. The most important court official is the Registrar, an officer of the court who has certain limited powers to make decisions and court orders. You will be required to give sworn evidence about your ability to pay, and you are required to be truthful about your income and expenses, as well as your assets. [see Uniform Civil Rules 2020 rule 203.7(2)]

This hearing is not to determine if you ow the money. If you get to this stage and you don’t think you owe the money you should tell the Registrar at the beginning of the hearing. Your hearing may then be adjourned to allow you to file your application to set aside the judgment. See above "I don't owe the debt. What can I do?" or Disputing a debt for additional information.

How can I prepare for the hearing?

There will be a financial statement (Form 145 Questionnaire) attached to the summons. It is very important that you complete the financial statement with all your income and expenses and take it into the hearing with you.

Note: The Form 145 Questionnaire asks you to include any income from your spouse/partner. If you include this income it is very important that you also include all of your joint income and expenses, as well as debts. If a debt is in your sole name, your spouse/partner cannot be compelled to pay it.

Do not be afraid to seek help. Contact a free financial counsellor as they can help you prepare the form, and explain the court process to you and provide support and information on your rights and what you can say when you get into the court hearing. Courts sometimes have financial counselling services available, so take advantage of this service, or you may like to ring 1800 007 007 to get further advice and help.

The court can only make an order for payment on what money you have left after the necessary living expenses for you and your family and other debts have been paid [see Enforcement of Judgments Act 1991 s 5(3)]. If you cannot afford to make any repayments, your income and expenditure statement will need to show this. The court will not make you pay more than you can afford even if the creditor wants more.

What can I say in court?

You can make an offer of installment payments of a certain amount per fortnight or month or a lump sum. This should be an amount that your financial statement shows that you can realistically afford.

You can ask for an adjournment to:

You can say that you cannot pay because you have no money after living expenses and other debts (your Questionnaire would show this) or because your only income is from a Centrelink pension or benefit.

It is very important that you speak openly if you cannot pay, and do not agree to a repayment amount just to get out of the court. This will cause problems later. Remember though the creditor may have other options to recover some debts e.g. councils can force the sale of home for council rates arrears or can wait until property is sold.

What decisions or orders can the court make at an Investigation Summons hearing?

The Registrar can make a number of decisions or orders that include:

The Registrar may also make no order at all.

Make an order for payment by installments

If your financial statement indicates that you can afford to make payments of the debt the court will issue a payment order with specific amounts and due dates (e.g. fortnightly or monthly installments to the creditor until the debt and costs are paid).

Once a court order for payment is made you must make the payments exactly as ordered until the debt is paid off as well as any court fees and interest. If you miss two or more payments, the creditor can take further action against you that will result in additional court costs and interest being added to the total debt. You can always pay more but not paying a court order for the higher amount will have serious consequences.

Missing payments is considered to be failing to comply with a court order – the creditor can then take further action including requesting the court send a summons to you to appear at an Examinations Hearing [see Enforcement of Judgments Act 1991 s 5(5)].

Make no order

The court cannot make an order that would impose unreasonable obligations on you. This means that the court accepts that your completed Questionnaire clearly shows you cannot make any repayments or that your only income is a Centrelink payment and you do not agree to offer any payments.

If your situation is unlikely to change the Registrar will not make an order but will set another court date for a time in the future, e.g. 3-6 months ahead, to review your financial position. You still legally owe the debt but are not required to make payments during this time.

You will then have to attend the next hearing with an updated financial statement. If there has been no change then the court still may not make an order. However, if, your income has increased or expenses decreased e.g. you were on a Centrelink benefit and now have income from paid employment then you may now have capacity to pay the debt and an order could be made.

The creditor can still issue a bankruptcy notice or put a charging order over property you own, which restricts the sale of your property without payment of the debt.

Adjourn the matter for further investigation or advice

A short adjournment may be made to give you the time to gather further evidence or information about your finances or to seek legal or financial counselling advice. See above for the reasons you might ask for an adjournment.

The debt does not go away if this happens.

What if I cannot pay a Court Order?

If you find you cannot make a court ordered payment you must apply to the court to change or stop a court order. Contact the court registry on (8204 2444) and let them know immediately, or get in touch with the creditor and tell them.

The court will then review your financial circumstances. This will also stop the creditor taking any further action against you and avoid further court appearances and additional costs being added to the total debt.

You also have other options such as filing for bankruptcy yourself (see 'Paying a debt') but you need to think very carefully about whether this is the right thing to do because it has far reaching consequences which you may not understand. Get some legal advice from the Legal Helpline 1300 366 424 or get in touch with a free financial counsellor before taking this step.

I missed payments and have an Examinations Summons – what happens now?

If you miss making any two payments the creditor can ask the court to issue a summons to appear at an Examination Hearing [see Enforcement of Judgments Act 1991 s 5(5)]. At this hearing you will have to explain why you have not made the payments. The court will want evidence of your financial circumstances again and will want to know why you did not make the payments or inform the creditor.

Following the Examination Hearing the court has three options:

Order you to pay the arrears and continue the ordered payments

If the court determines that you had no good reason to miss payments they may order you to pay all missed payments as well as the original ordered payments.

It is important to make sure you do not commit to a payment order that you cannot afford. Be very clear with the court if you cannot afford to make any payments or if your financial situation has changed since the first order was made.

Missing more payments will be a breach of a court order and could lead to a Warrant for Commitment (Prison Term) [see Enforcement of Judgments Act 1991 s 5(7)]. The debt will remain.

Issue a new court order or no order

If your financial situation has changed since the first order was made and you cannot afford to make any payments or your only income now is from a Centrelink payment the court may make no order. The debt does not go away – you may be asked to return to court at a later date to review your capacity to pay.

The court may make alternative arrangements for payments depending on the evidence you raise at the hearing about changed financial circumstances or financial hardship.

Issue a Warrant of Commitment (Prison Term)

Although rarely issued, the court has the power to issue a warrant of commitment (prison term) for up to 40 days if you fail to provide good reason why you stopped making payments as ordered by the Court [see Enforcement of Judgments Act 1991 s 5(7)]. You are considered to be in contempt of court. The debt remains and you will still have to comply with the court orders. A Warrant of Commitment is issued by the Court, and not by the judgment Creditor.

I have been given a Summons to Witness for a Company Debt - what should I do?

A company officer (director or secretary are examples of company officers) can be summonsed to appear in Court to explain how a company can pay a judgment debt. You should bring information about the company's financial situation, including bank accounts, tax returns or financial statements to provide to the Court.

If your company has ceased trading or has no money to pay the debt, you (as the director or other officer) cannot be made responsible for payment of the debt. It is only the person or company against whom the judgment has been given who is liable for the debt. If your company is struggling to pay its debts, you need to get professional accounting advice quickly because of your duty as a director to avoid trading whilst insolvent.

Debt management firms offer fee-based services to represent consumers in negotiations with creditors and credit reporting agencies. Fees may be charged on a deferred basis, or as part of an ongoing contract with the consumer to manage payments to creditors. Unfortunately, debt management firms target consumers in financial hardship and may take advantage of vulnerable consumers who find speaking to the bank difficult or may not be aware of their rights concerning credit reporting.

Be aware that financial counselling is a free service that helps consumers deal with debt problems, including negotiations with creditors. A free financial counsellor can also help consumers to understand how to fix inaccurate credit reporting information.

Regulation of Debt Management Firms

The National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021 (Cth) prescribe a new type of credit activity to include the services offered by debt management firms. The credit activity caught by the regulations is limited to services provided to assist with consumer credit contracts and does not apply to business loans, consumer leases or utilities bills.

Lawyers who offer debt management services will no longer be able to rely on the exemption and must obtain a credit licence if they are to continue to offer the same type of credit activity [see reg 24 (4)].

From 1 July 2021, debt management firms must hold an Australian Credit Licence (ACL) and meet the same obligations as other credit licensees. Financial counsellors are exempt from the requirement to hold an ACL because they do not charge a fee for their services.

The obligations are set out in section 6 of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) and include:

To obtain a licence from ASIC, the person applying must meet the ‘fit and proper person’ test under sections 37A and 37B of the NCCPA.

Regulated Services offered by Debt Management Firms

There are two types of services captured by the regulations - debt management assistance and credit reporting assistance which are commonly provided by debt management firms. The regulations do not apply to services offered in relation to utilities bills, consumer leases or business loans.

The regulations define debt management assistance as:

Assisting a consumer to, or suggesting that the consumer applies for

Assisting a consumer to, or suggesting that a consumer

This catches a debt management firm that negotiates with a credit provider on behalf of a consumer for a hardship variation under section 72 of the National Credit Code or a waiver of a debt such as a personal loan, credit card or other debt. A financial counsellor can help a consumer to undertake these activities for free.

The regulations define credit reporting assistance as:

Assisting a consumer, or suggesting that the consumer to

Consumers sometimes think that it is possible to improve a credit score by removing listings from the report, but unless the information is inaccurate, generally the listing will stay for a certain period. A financial counsellor can help a consumer understand their rights in relation to credit reporting and these services are free.

Contact the National Debt Helpline on 1800 007 007 for further information and to get in touch with a financial counsellor.

Obligations of Debt Management Firms

Debt management firms have previously attracted criticism for not treating consumers fairly and charging excessive amounts of money for their services. The requirement to comply with section 6 of the NCCPA to deliver services efficiently honestly and fairly includes:

Further information about debt management firms and conduct obligations is on the ASIC website [link opens in a new window].

Complaining about a Debt Management Firm

Membership of AFCA is mandatory for debt management firms. The option to access free dispute resolution is an important feature of the licensing arrangements for consumers unhappy with the debt management firm. For more information about how to complain to AFCA , please visit the Law Handbook chapter on COMPLAINTS.

National Debt Helpline (formerly the Financial Counselling Hotline) 1800 007 007

The free helpline is open from 9:30am to 4pm, Monday to Friday. When you call this number you will be automatically transferred to the phone service in your state. There is also an online search facility to locate a financial counsellor at the South Australian Financial Counsellors Association.

Australian Financial Security Authority (AFSA) (formerly ITSA)

Level 9, 80 King William Street ADELAIDE SA 5000

GPO Box 2604 ADELAIDE SA 5001

Telephone: 8112 4300, 1800 882 078

GAMBLING COUNSELLING SERVICES

Gambling Help Services (SA)

Telephone: 8223 4566

Gambling Help Line

Telephone: 1800 858 858

FINANCIAL COUNSELLING SERVICES

Financial counsellors can help you organise your finances, design a personal budget, negotiate with your creditors, explain debt recovery procedures,bankruptcy and other alternatives.

Their services are free.

DEPARTMENT FOR CHILD PROTECTION FINANCIAL COUNSELLING SERVICES

Clients of the Department for Child Protection may be able to receive financial counselling services from the Department for Child Protection. For office locations and contact details visit the Department for Child Protection website.

OTHER TIPS AND TOOLS ON AFFORDABLE LIVING

Money Smart - Commonwealth Government website offering practical information about a range of issues

Doing it Tough- information from lenders about how to deal with financial hardship