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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.

HOT TIPS!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.

Try External Dispute Resolution!

Some money disputes with businesses can be resolved through external dispute resolution (EDR) schemes. There are many EDR schemes and they may apply to credit providers and insurers (AFCA), energy and water providers (EWON), and phone, internet and mobile phone companies (TIO). Each scheme has its own rules about what they can do.

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. Lodge with EDR/NCAT

EDR – Apply to have your credit/Telco/energy dispute resolved through EDR
NCAT - Most consumer disputes can be dealt at NCAT.

5. Pay in full

HOT TIP! If you try EDR first and lose, you can still take your consumer dispute to NCAT.

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 AFCA (if applicable).

If your debt is with a credit provider or their debt collector, lodge with AFCA before the Court makes its decision. Court action is stopped while AFCA is looking into your complaint.

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 with AFCA

If your debt is a credit dispute, you should lodge with AFCA immediately.

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.


If you confess to the debt, a judgment will be entered against you which means you can no longer go to EDR. Try to negotiate a repayment arrangement through EDR first if EDR is available.

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

If you get a judgment made against you, the judgment creditor can do any or all of 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.


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. Your employer and bank are required to leave you a minimum prescribed amount.

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:

  • essential household items and anything reasonably necessary for your domestic household use
  • a car that is valued under a prescribed amount (as aligned with the Bankruptcy Act)
  • tools of trade up to a prescribed amount (as aligned with the Bankruptcy Act)
  • any item where the cost of seizure and storage will exceed the sale price in their opinion
  • any item that would be protected in bankruptcy 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.

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


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 the Australian Financial Complaints Authority (AFCA), 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 provides legal help over the phone or referrals to your nearest Legal Aid NSW office for a free advice session. Call 1300 888 529 or visit www.lawaccess.nsw.gov.au

LawAssist 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 and debt matters. For legal advice call the Legal Advice Line on 1800 844 949 or visit www.financialrights.org.au

Insurance Law Service provides advice on insurance disputes. Call 1300 663 464 or visit www.insurancelaw.org.au

Community Legal Centres provide free legal services. To find your nearest centre call 9212 7333 or visit www.nswclc.org.au

Financial Counsellors provide assistance with debt problems. To find your nearest financial counsellor call the National Debt Helpline on 1800 007 007 or visit www.ndh.org.au


Australian Financial Complaints Authority (AFCA) provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints. Call 1800 931 678 or visit www.afca.org.au

Energy and Water Ombudsman provides a free, fair and independent dispute resolution service for all electricity and gas customers, and some water customers, in New South Wales. Call 1800 246 545 or visit www.ewon.com.au

Telecommunications Industry Ombudsman provides an independent dispute resolution service for telephone and internet complaints. Call 1800 062 058 or visit www.tio.com.au

This publication is a general guide to the law. You should not rely on it as legal advice, and we recommend that you talk to a lawyer about your situation.

©Legal Aid NSW 2018.