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Are you being squeezed for a debt?

Even if you don't agree with how much you owe or don't think you owe the money, you should do something. This brochure explains some of the legal steps to take if you are in dispute about amounts under $100,000 in the Local Court.

Debt and the court process - what are your options?

What is a Letter of Demand? (Default Notice)

This is a letter or notice from the creditor (the person/company who says you owe money) which demands that you pay a set amount by a certain date or court proceedings will be started. A letter of demand is not from the court.

When you get a letter of demand, check the amount is correct. If you disagree with what it says you owe, or there are not enough details, write a letter (and date it!) to the creditor asking for a detailed statement of money owed. Keep copies of all your letters.

If you are uncertain what to do, contact one of the services listed on the back of this brochure.

If you owe the money but can’t afford to pay it all back at once, try to negotiate with the creditor.

When negotiating with a creditor, only agree to make repayments that you can afford.

Debt Flow 

 Click to enlarge image

Solving disputes out of court - External Dispute Resolution

Some money disputes with businesses can be resolved through external dispute resolution (EDR) schemes. There are many EDR schemes and they apply to all banks, credit providers, insurers and to many energy and water providers, internet and mobile phone companies. For example, all banks and insurers are members of the Financial Ombudsman Service (FOS).

If the business you are in dispute with is a member of an EDR scheme, then you can take your dispute to that scheme. EDR is free. EDR determinations bind the business you are in dispute with, but do not bind you.

If your dispute is with another person, you can try the free mediation service at your local Community Justice Centre.

If your dispute relates to consumer goods or services or is about renting your home, you might be able to apply to NSW Civil and Administrative Tribunal (NCAT). This is a cheaper alternative than court.

If you need more advice, call LawAccess NSW or see a lawyer about alternatives to court.

Responding to a Letter of Demand

1. You don't owe it (or part of it)

Tell the creditor you dispute it and why

2. Don't ignore it

because your creditor can then begin legal proceedings and you will have to pay the legal and court costs if you lose in court.

3. Negotiate with the creditor

if you can’t pay the full amount by either:
  • requesting an extension of time to pay the debt;
  • requesting to pay the debt off in instalments;
  • offering to pay a reduced amount to finalise the debt;
  • requesting that the debt be written off;

4. External Dispute Resolution (EDR)/ Solving problems out of Court

If informal negotiation does not work there are some alternatives to court for you to consider.

EDR - Some disputes (especially those with companies) can be resolved through EDR. For example all credit providers must be in either FOS or Credit Investment Ombudsman (CIO). EDR schemes can also resolve disputes about financial hardship.

NCAT - Most consumer disputes can be dealt at NCAT. This is easier and cheaper than going to Court.

5. Pay in full

What is a Statement of Claim?

If you receive a Statement of Claim you must do something— don’t ignore it!

This is a document issued by the Local Court. It means the creditor has started legal proceedings to recover money from you.

If you receive a Statement of Claim, you have 28 days from the date you received it to file a response with the Court or lodge in EDR (if applicable).

If your debt is with a bank or even a debt collector acting for a finance company, use EDR before the Court makes its decision. Court action is stopped while you are in EDR.

Responding to a Statement of Claim: Your options

1. Ignore the claim.

If you ignore the claim, the Court will order that you owe the money to the creditor. This is called a “Default Judgment”.

2. Lodge in EDR

If your debt is a credit dispute, you should lodge in EDR (FOS or CIO immediately). If your debt is a utility bill dispute (electricity, water or gas), lodge in EWON. If your debt is a phone or internet bill dispute, lodge in TIO

3. File a defence

If you say you don’t owe the money you can file a defence. You have 28 days from service of the Statement of Claim to file this with the Court.

4. Agree to pay all or part of the debt.

If you agree to all of the debt, you should pay it and the filing cost. If you agree to part of the debt but not all, you must still file a defence. You cannot confess just to that part of the debt. You should get legal advice before you do this.

5. File a cross claim,

claiming that the creditor owes you money. If you take any of the above options, (3, 4, and 5) you will have to file a form in the Local Court. You should do this within 28 days.

The court decision

The Local Court can order you to pay the debt, plus the costs of the Statement of Claim service and lawyers fees if you:

  • ignore the Statement of Claim for 28 days and the creditor asks the Court to make a Default Judgment. You will not be told about this; or
  • “confess”; or
  • defend the Statement of Claim but you lose. The costs of the creditor’s lawyers will then be added to the debt and can be very high after a defended hearing.

If the Court makes an order that you must pay a debt, the creditor is called the “judgment creditor” and you are called the “judgment debtor”. When the order is made, “judgment” is given against you. This order remains in force for at least 12 years. This means the judgment creditor has at least 12 years to take further action to recover money owed by you.

After a court order: How the creditor can make you pay

If you get a judgment made against you, the judgment creditor can do the following to enforce it:

Examination Notice:

This notice requires you to either answer questions about your income and/or provide specified documents about them. If you do not provide this, you can be ordered to attend court for examination about your financial circumstances. If you are ordered to attend court and do not turn up, you can be arrested and brought to court; and/or


The judgment creditor can ask the Court to “garnishee” your wages or bank account. This is a court order telling your employer or bank manager to give your money to the judgment creditor and not to you. Any money you receive from Centrelink cannot be taken by the judgment creditor, but if placed in a bank account it is at risk of being taken; and/or

Writ for levy of property (real or personal):

This is a court order allowing a Sheriff’s Officer to remove items (“personal property”) from your home to pay the debt. The Sheriff’s Officer may not take or sell:

  • bedroom and kitchen furniture; or
  • your tools of trade up to a certain value; or
  • goods which are not yours
The Sheriff’s Officer cannot force entry to your home but if denied entry, can obtain a court order to enter your premises. For debts of $10,000 or more, a writ can be issued over “real property” (eg your home), to satisfy the debt.


If the judgment debt is $5,000 or more, the creditor can apply to the Federal Court to have you declared bankrupt. If you receive a Bankruptcy Notice you should seek advice from a lawyer immediately.

HOT TIP! What you can do to stop enforcement

  1. Negotiate a repayment arrangement - make sure it is in writing.
  2. Apply to the Local Court to pay by instalments
  3. Declaration of Intent/Voluntary bankruptcy – get advice from a financial counsellor first

If you owe someone money, you should do something about it.

You have a right not to be harassed even if you are being pursued for debt.

If your dispute is with a credit provider and you are experiencing financial hardship, call the credit provider or lodge with an EDR scheme, asking for a ‘hardship variation’.

Debt collectors and companies must comply with the Australian Securities and Investments Commission (ASIC)/Australian Competition and Consumer Commission (ACCC) Debt Collection Guidelines. You can complain to ASIC or ACCC about a company or debt collector who is harassing or intimidating you in relation to a debt.

Remember, in NSW, no one goes to prison just for owing money.

Free advice and information:

LawAccess NSW

1300 888 529. www.lawaccess.nsw.gov.au


is a website that explains Local Court procedures as well as alternatives to court. Go to www.lawaccess.nsw.gov.au/lawassist

Financial Rights Legal Centre:

specialises in credit/debt matters. For legal advice call, call 1800 007 007 (Credit & Debt hotline) www.financialrights.org.au

Insurance Law Service:

for advice on insurance disputes Ph 1300 663 464 www.insurancelaw.org.au

Legal Aid NSW offices

Call LawAccess NSW on 1300 888 529 for help over the phone, or your nearest Legal Aid office to arrange a free advice interview.

Community Legal Centres:

for your nearest centre call 9212 7333 www.nswclc.org.au

Financial Counsellors:

assist people with debt problems.
Ring Credit & Debt Hotline on 1800 007 007 To find your nearest financial counsellor go to www.financialrights.org.au

EDR Schemes

Credit Investment Ombudsman (CIO)

is an EDR scheme which assists consumers to resolve complaints with their financial services providers. 1800 138 422 or www.cio.com.au

Energy and Water Ombudsman

provides free dispute resolution in relation to water and energy providers. Call 1800 246 545 during business hours. www.ewon.com.au>

Financial Ombudsman Service

Free dispute resolution in relation to financial service providers and insurers. 1800 367 287 www.fos.org.au

Telecommunications Industry Ombudsman

provides free dispute resolution in relation to internet and phone companies. 1800 062 058 http://www.tio.com.au


Date: October 2015