This fact sheet is for information only, and applies to NSW. It is recommended that you get legal advice about your situation.
Nick had been having trouble paying his credit card debt. At first, the bank was ringing him all the time but then he heard nothing for a while and thought the debt had been written off. A year after he had stopped paying Nick was contacted by a debt collector. The debt collector said he had to pay the whole debt within the next week or he would be taken to court. The debt collector told Nick that they could take his car, his stereo or anything else of value. Nick is now too scared to open the door in case someone will come in and take his things!
If you are being threatened with court action over a debt it is useful to know what happens and if you can do something to stop court action.
REMEMBER: YOU CANNOT BE SENT TO JAIL FOR NOT PAYING A DEBT!
If you owe money to someone they may take you to court to recover their money. This is usually referred to as legal action or court action. The information below refers to debt recovery in the Local Court in NSW only.
WHEN CAN COURT ACTION BE COMMENCED AGAINST ME?
As a general rule, court action can be commenced against you as soon as you have failed to make a repayment or pay a debt by the due date. One major exception to this rule relates to loans for personal purposes. For these loans, a default notice must be sent to you giving you 30 days to fix the default.
In practice, the person or company claiming that you owe them money (the plaintiff) will usually send reminder notices and a final letter of demand before commencing court action.
HOW DO I KNOW WHEN COURT ACTION HAS COMMENCED?
You will know when court action has commenced against you as you will receive a “Statement of Claim” (also called a Summons). A Statement of Claim is usually sent by ordinary post. This means that if you have moved address, the plaintiff may use your last known address and you may not receive the Statement of Claim.
You can check that it has been issued by the court because it will have:
- The name of the relevant court and a court stamp
- A court number
- A brief description of what will happen if you do not respond within a certain time.
If you are unsure whether the document has been issued by the court you should ring the NSW Court Services on 1300 679 272 and check.
WHAT DO I DO NEXT?
If you have received a Statement of Claim you usually only have 28 days to respond. You have 28 days to respond from the date you were served the Statement of Claim. After 28 days the plaintiff can apply for judgment.
NOTE: The Plaintiff may apply for judgment as soon as the 28 days has finished or may take longer. If you are unsure whether the lender has a judgment ring the Court.
A Statement of Claim is an important document. Do not ignore it. Get legal advice immediately. See Factsheet: Getting Help for details.
You have 4 options once you have received a Statement of Claim. They are:
IF THE AMOUNT CLAIMED IS A LOAN YOU CAN USUALLY LODGE IN AN INDEPENDENT EXTERNAL DISPUTE RESOLUTION SCHEME (EDR).
You have the option of lodging a dispute on the basis that you are:
- in financial hardship and/or
- have a reason why you do not owe the debt claimed.
If you lodge in EDR the court action stops until the matter is dealt with by the EDR. You must lodge in EDR before the plaintiff obtains judgment.
NOTE: This is the best option in most cases
- DO NOTHING
If you do nothing, the plaintiff may obtain judgment against you. This means that the court will make orders that you owe the money claimed. The plaintiff can then take enforcement action through the court – see Debt enforcement in the Local Court fact sheet.
CONFESS THE DEBT (APPLY TO PAY BY INSTALMENTS, IF REQUIRED)
If you decide to confess the debt, you need to go to the court and fill in the relevant forms. If you confess the debt this means that the plaintiff has judgment against you. You can also apply to pay off the debt by instalments. For more information see Fact Sheet: Making an application to pay by instalments.
WARNING: DO NOT CONFESS THE DEBT UNTIL YOU GET LEGAL ADVICE!
LODGE A DEFENCE TO THE DEBT AND/OR A CROSS CLAIM EXPLAINING WHY YOU DO NOT OWE THE MONEY
You should get legal advice before you do this as you will be exposed to the risk of costs orders. The defence must be lodged with the court before the time given to respond on the Statement of Claim expires. For a basic guide on filing a defence, see Fact Sheet: Filing a Defence.
MAKING A SETTLEMENT
If at any time you are able to come to an agreement with the plaintiff (such as to pay a lesser amount in full and final settlement of the debt), you should get that agreement in writing or draw up consent orders and make sure that it includes a requirement that the plaintiff will lodge a Notice of Discontinuance which can be found at www.ucprforms.justice.nsw.gov.au (follow the links to Local Court and court forms) in the relevant court. You should get legal advice before agreeing to any settlement and get a receipt for any amount paid.
If the plaintiff obtains judgment against you (because you lost the case, confessed the debt or did nothing) they can do any of the following:
- Take and sell certain valuable assets.
- Garnishee your wages or bank account. This means they can take money from your bank account or out of your pay to cover your debt.
- Force you to become bankrupt.
- Examine you in court to find out your income, assets and liabilities.
IMPORTANT: THE PLAINTIFF CANNOT TAKE ANY OF YOUR POSSESSIONS, OR TAKE MONEY FROM YOUR WAGES OR BANK ACCOUNT UNTIL THEY HAVE JUDGMENT AGAINST YOU!
For more information on what happens after the plaintiff has obtained judgment and what can you do, see Fact Sheet: Enforcement of debts in the Local Court.
WHAT CAN I DO IF THERE IS A JUDGMENT AGAINST ME BUT I DID NOT RECEIVE THE STATEMENT OF CLAIM?
If you dispute that you owe some or all of the debt then you may have a defence. You may be able to successfully lodge an Application to Set Aside Judgment. For a Guide on this see Fact Sheet: Making an application to set aside judgment.
If you owe all of the money and do not have a defence then usually you will not be able to set aside the judgment. In this case you should consider making a Notice of Motion to Pay by Instalments, or paying the debt. See Fact Sheet: Making an application to pay by instalments and Fact Sheet: Enforcement of debts in the Local Court.
NEED SOME MORE HELP?
See Fact Sheet: Getting Help for a list of additional resources.
Last updated: October 2018.