A client will be judgment proof if their only income is from a Centrelink (or, in most cases, Workcover) payment and they:
* These amounts change periodically – for the most up to date figures go to the Australian Financial Security Authority.
Section 12 of the Judgment Debt Recovery Act 1984 (Vic) (Judgment Debt Recovery Act) provides that, an instalment order will not (unless the debtor consents) be made if the income of the judgment debtor is derived solely from a pension benefit allowance or other regular payment under the Social Security Act 1947 (Cth) or section 24 of the Children, Youth and Families Act 2005 (Vic).
This means that the client can’t be forced to pay a debt from his or her Centrelink income and has no assets that the creditor can seize.
A creditor may still obtain judgment against the debt, but can’t enforce it.
It’s important that this is pointed out to clients who are judgment proof, so that they can then decide whether to continue paying the debt or whether they should prioritise other debts and expenses such as rent, food and essential services bills.
When and how do you rely on a client being judgment proof?
Keep in mind that for judgment proof clients the best option may be not to pay anything – if a person can’t afford to pay for food and rent (and they don’t have any assets), it may not be appropriate for them to be signed up to a payment plan.
While not paying is not the best option for all judgment proof people, it is the best for a significant number of our clients who are struggling to make ends meet on a day to day basis.
Subject to the client’s instructions, you can point out to the creditor that the client is judgment proof in the course of negotiations. It is not necessary to expressly use the phrase “judgment proof” at this stage, you can rely on an explanation that your client has no income and no assets and very limited capacity to earn an income in the future. This judgment proof (negotiation) template letter relies on the client being judgment proof in this way.
While it is by no means guaranteed, making these circumstances clear to the creditor will make it less likely that the creditor will incur the costs of proceeding to seek judgment in relation to the debt.
Further information on this process is set out under Negotiating with the creditor.
The best outcome for the client will be that the debt will be waived.
It is important that you have discussed the potential consequences of relying on being judgment proof with your client. It is also important to note that, if the debt collectors persist or the creditor is unwilling to negotiate and proceeds to apply for judgment, this may cause further stress for your client (both financial and emotional). Where the creditor keeps contacting your client, a letter (see below) should be sent to the creditor reiterating that they are judgment proof, have no obligation to pay and therefore any further contact with them in relation to the debt may constitute harassment under section 45(2)(m) of the Australian Consumer Law and Fair Trading Act 2012 (Vic) (Dealing with Debt Collectors).
If the client continues being contacted by the creditor or debt collector after it has been put on notice that the client is judgment proof, it is worthwhile lodging a complaint with the relevant EDR scheme and the government regulator as such conduct could amount to harassment and coercion. The client may also want to consider bankruptcy as a means of stopping the contact from the creditors and should be referred to a financial counsellor for information about this (refer to Bankruptcy for more information).
Something to keep in mind is that a number of our clients are trying to get things back on track and might therefore give instructions that they would prefer to enter into a payment plan to chip away at the debt. You should also think about your client’s relationship with the relevant creditor – do they need to preserve the relationship or continue to receive the service?
If your client is likely to have no income other than Centrelink for at least the next two years and has no assets to sell, the client may wish to apply for the National Hardship Register.
National Hardship Register
The National Hardship Register alerts participating creditors that persons listed on the Register will be unable to repay their debts. The following organisations participate in the National Hardship Register Program, and have agreed not to contact those listed on the Register:
More information about eligibility requirements and the application process is available on the National Hardship Register website.
Potential consequences of relying on being judgment proof
In the event that negotiation is not successful, the client should be made aware of the following potential consequences of not paying a debt and relying on being judgment proof.
If the client’s debt is a secured debt (such as a mortgage over goods or a property), doing nothing in relation to the debt will result in the creditor taking steps to enforce their security, for example, by seizing and selling the relevant asset.
Refer to Secured Debts.
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