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If the Magistrates’ Court of Victoria (MCV) finds that you or your company owe a debt, there are consequences if you do not pay it. This article will explain judgment debts ordered by the MCV and the immediate and long term impacts for you or your company. 

What is a Judgment Debt?

A judgment debt is a debt that a court has ordered to be paid. This means that a court has likely considered the merits of a claim and concluded that payment is due. This order means that the person who is owed money (the creditor) can pursue you, the person owing money (the debtor), for the debt. The creditor can also pursue you for the legal costs that have arisen due to the court proceedings (provided that the court has included this in its orders) as well as the interest on the debt.

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Filing a Notice of Defence

If you do not file and serve a notice of defence within 21 days of receiving a complaint, the creditor can apply for a judgment in default, which is an automatic judgment against you. If you do not believe the debt is valid or the amount in the court orders is correct, you may be able to apply to have the judgment set aside. To do this, you will likely need to explain to the court why you did not file a notice of defence and set out your defence (or the error in the orders).

What Happens Next?

Once the creditor has obtained a judgment against you, they can apply to the MCV for different types of orders to satisfy the judgment debt. This table outlines orders that the MCV can make when a creditor applies. If you operate as a sole trader (e.g. you have an ABN but not an ACN), your personal assets may be on the line. If you operate as a company, (you have an ACN), then the judgment debt may only be enforceable against the company’s assets.

Types of Orders

Order What Does It Mean?
Warrant to Seize Property

This order allows the sheriff to seize property (not land) that can be sold to satisfy the judgment amount. If you are a company, this may include company assets such as company cars.

If you operate as a sole trader, the sheriff may seize your personal assets. There are limitations on the type of personal or company property that the sheriff can seize.

Instalment Order

(can be sought by creditor or debtor)

This order changes the way you need to pay the judgment debt. It allows you to pay off the debt in smaller instalments over a longer period of time. An order like this might be suitable if you or your company will have enough money to pay the debt, but have issues with immediate cash flow.
Attachment of Earnings This is an order requiring your employer to take money out of your wages and give them to the creditor. However, an attachment of earnings order cannot be made if you are self-employed. Therefore, it is inappropriate for enforcing judgment debts against sole traders.
Attachment of Debt (Garnishee Order) This allows the creditor to access funds in your bank account. If you are operating as a company this will be your company account. If you operate as a sole trader, this will be your personal bank accounts (e.g. your savings account).

How Does the Creditor Know What Assets I Have?

Before a creditor decides how they might enforce the judgment debt against you, it is likely they will seek further information about you or your company’s assets (or both). They may do this by summoning you (i.e. requiring you) to attend court for an oral examination. This requires you to attend court and answer questions on oath about your financial affairs. The process involves getting in the witness box and a registrar of the court questioning you. The creditor or their solicitors may also question you. Remember that you will be giving evidence under oath so you cannot lie about what assets and liabilities you have. To do so may amount to perjury which is a criminal offence punishable by imprisonment.

If you fail to attend court, the court may issue a warrant for your arrest. The police may locate you and you can agree to attend court to face the charge, otherwise known as bail. If you fail to attend court after this, you will break the law.

Who Carries Out the Enforcement?    

The creditor cannot come to your door demanding to enter your home or place of business to seize goods. The only person who can enforce warrants is someone from the sheriff’s office.

Key Takeaways

If you fail to pay a judgment debt, there may be consequences for you or your company. The creditor may ultimately seize assets to satisfy the judgment debt including personal assets if you operate as a sole trader. The creditor may also apply to make you bankrupt in some circumstances. Once a warrant has been issued, the sheriff’s office will begin the enforcement process. If you think the debt is false or the amount is incorrect, you should seek urgent legal advice to see if the judgment can be set aside.

If you have any questions about judgment debts or need assistance dealing with a judgment debt against you or your company, you can contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.


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