Few rich men own their own property.
The property owns them.  1

Property Law Table of Contents

In this chapter

Credit Assessment
Prior to Judgment

(a)	Generally
(b)	Letter of Demand
(c)	Statement of Claim
(d)	Service
(e)	Judgment

Enforcing Judgment
Bankruptcy

(a)	Generally
(b)	Procedure
(c)	Property of Bankrupt
(d)	Discharge



1.	Credit Assessment.

Debt recovery is a common problem for persons engaged in business. The 
processes involved are time consuming, expensive and the recovery rate is 
generally low. The most vigorous pursuit of debtors who cannot or will not pay 
is often fruitless. Recovery rates of ten to twenty percent of the amount owed 
are not unusual. Proper caution in granting credit is essential.

In considering whether to grant personal credit detailed information should be 
obtained with respect to the applicant. In particular details of credit history and 
financial references. Bureaux e.g. Dunn & Bradstreet and Credit Reference 
Association maintain credit information for members of the bureaux. Credit 
organisations often report to a bureau a debtor's slow payment or non-payment 
of a particular debt. If a default judgment is recorded against a debtor details of 
judgments are supplied to the credit bureaux. Although credit ratings are not 
used in N.S.W. the default information will form part of the consumers credit 
record and will be disclosed in enquiries to a credit bureaux.

Complaints relating to a person's privacy can be directed against persons as well 
as organisations, one of the most common issues being credit reporting. The 
Investigating Officer attempts to resolve privacy issues by conciliation. As a 
result of past resolution attempts, government organisations have revised their 
policy on information systems in order to safeguard individuals rights to 
privacy.

Commercial methods of encouraging punctual payment should be employed e.g. 
periodic statements giving particulars of amounts due, reminder notices and 
discounts for punctual payment. A default interest provision should be included 
in the credit application. However the rate of interest must be a reasonable 
estimate of the actual loss to the creditor if it is not to be held by the court to be a 
penalty and unenforceable.


2.	Prior to Judgment.

(a)	Generally.

An action for the recovery of a debt will not succeed unless it is commenced 
within a period of 6 years from the date when the debt (or cause of action) first 
arose2  . However, if the debtor confirms the debt i.e. agrees that an amount is 
owing, before the end of the limitation period, the limitation period will 
recommence from the date of confirmation. The requirements for a confirmation 
are that the acknowledgement must be in writing to the person having the cause 
of action or a payment under the debt to the person having the cause of action3  .

The process of debt recovery falls into two stages: obtaining judgment i.e. legal 
recognition by a court that the creditor has a right to be paid; and enforcement of 
judgment i.e. if the debt remains unpaid after judgment there are certain steps 
which the creditor may take to try to obtain payment.

(b)	Letter of Demand.

Debtors who have fallen behind in payments will generally receive a letter from 
the creditor demanding payment from them. Sometimes these letters are 
designed to look like court documents. If the debtor receives a letter of demand 
that looks like a court document he can complain to the police. It is also illegal 
for a debt collection agency to charge a debtor a fee for collection of the debt or 
attempt to do so4  .

On receipt of the letter of demand the debtor must do something. The amount the 
creditor is claiming should be checked and the creditor asked for a detailed 
statement if necessary. Advice should be sought as to whether the law has been 
complied with for certain types of debt. Any problems with the goods or 
services provided should be taken up with the creditor.

Once the debtor ascertains the amount owed there are still a number of options: 
paying the debt; not paying the debt; making an informal offer of payment by 
instalments; offering a reduced sum to finalise a debt; asking the creditor to write 
off the debt; request a moratorium; or bankruptcy.

(c)	Statement of Claim.

To commence an action to recover a debt the creditor must fill out a statement of 
claim, file it with the court and arrange for it to be served on the debtor. The 
action may be commenced in any court having jurisdiction. In some 
circumstances the defendant may request that the matter be transferred to a more 
suitable court.

A statement of liquidated claim is usually issued to recover a debt. This form of 
statement of claim can only be used when the claim is for a liquidated amount 
and not when the plaintiff is seeking damages e.g. damages for personal injuries 
received in a motor vehicle accident. If a defendant does nothing within 28 days 
after service of the statement of claim the creditor can apply to the court for 
default judgment. If the statement of claim is in order this judgment will be 
entered automatically without a hearing and without the creditor having to prove 
his claim. To prevent the creditor obtaining a default judgment the debtor must 
file with the court a notice of grounds of defence. It is important that the debtor 
acts immediately on being served with a statement of claim.

An ordinary statement of claim is used to recover damages. The defendant has 
28 days after service to file a notice of grounds of defence. If no defence is filed 
the plaintiff seeks an order for judgment and the court proceeds to a hearing only 
on the question of the assessment of the amount of damages to be awarded (the 
quantum of the claim). 

(d)	Service.

The creditor must serve the debtor with an official copy of the statement of 
claim. When the statement of claim is served the defendant is deemed to be 
notified that the plaintiff is taking court proceedings.

Generally a statement of claim is valid for service for two years from the date it 
is filed. A statement of claim may be served by delivering the official copy 
personally to the defendant. It may also be served in some jurisdictions by 
delivering a copy personally to the wife, husband or some other person 
apparently over the age of 16 years where the defendant usually lives or works. 
Normally posting would not be satisfactory service.

A company can be served by leaving the document at or posting it to the 
registered office of the company.5   A partnership or business registered under 
the Business Names Act can be served by leaving the document with a person 
apparently in the service of the business and apparently over the age of 16 years 
of age6  .

A notice of grounds of defence may be filed at any time before judgment and 
there is no filing fee. The defendant must set out clearly the grounds of the 
defence and must contain sufficient information to enable the plaintiff to know 
the case he must meet. The defence to a statement of liquidated claim must be 
verified by the defendant on oath.

A defendant who has any claim against the plaintiff can set this claim off against 
the plaintiff's claim. The defendant's claim need not arise out of the same 
subject matter as the claim by the plaintiff.

(e)	Judgment.

Once a statement of claim is served it is essential that the defendant acts 
immediately. Whether the defendant intends to admit or defend the claim the 
amount owing should be checked. If the amount claimed is correct the defendant 
may wish to come to an agreement with the plaintiff. If the defendant does not 
intend to defend the claim an offer to the plaintiff should be made. If an 
agreement can be reached details of the agreement can be filed with the court. If 
agreement cannot be reached a confession to the claim can be filed by the 
defendant with the court. When judgment is entered as a result of an agreement 
or confession only the costs of issuing and serving the statement of claim are 
added to the debt. 

A confession can be for the whole or part of the claim. If the confession is for 
only part of the claim the court does not automatically enter judgment for the 
reduced amount. The creditor has 14 days from notification of the confession to 
accept or reject the reduced amount. If the creditor does nothing the court will 
enter judgment for the reduced amount. With a notice of confession an 
application to pay by instalments is usually filed supported by an affidavit as to 
property and the means of the debtor.

There is little to be gained and money to be lost, by defending a claim right up to 
a hearing stage if the defendant knows the creditor can win or the defendant has 
no defence or cross-claim. Although filing a defence can be a negotiating tactic it 
is cheaper to settle a claim than fight it and lose it in court.

The creditor must apply for judgment within 12 months of the expiry of the 28 
days after the service of the statement of claim.

An informal agreement with a creditor does not safeguard the debtor against 
default judgment unless the statement of claim is withdrawn or discontinued the 
creditor can still apply for default judgment and enforce it against the debtor.

Where a default judgment has been entered against a debtor who has a good 
defence or the debtor believes creditor will have trouble proving the claim (e.g. 
because of lost records) the debtor can apply to have the judgment set aside. 
Whenever the debtor applies to have judgment set aside application should also 
be made to stay proceedings for enforcement of the judgment.

3.	Enforcing Judgment.

Once the creditor has obtained judgment the creditor can make applications to 
enforce judgment e.g. execution against the property of the debtor or 
garnishment of wages. The creditor is entitled to enforce judgement immediately 
it is entered. 

A writ of execution is an order to a bailiff to seize and sell goods of the debtor to 
satisfy the judgment debt unless the amount in the writ is paid. A creditor can 
apply for a writ to the registrar of the court in which the judgment was entered at 
any time within 12 years after judgment.

A creditor can garnishee money from certain people who owe money to the 
debtor. The most common garnishee order is to the debtor's employer to take an 
amount from the debtor's wages. A debtor's bank account can also be 
garnisheed.

Paying a judgment debt by instalments is usually the best method of repayment. 
The debtor must file an application to pay by instalments and an affidavit as to 
property and means. A registrar of the court decides whether to accept or refuse 
the amount of these instalments. Where the registrar accepts the instalments the 
creditor has 14 days from being notified to dispute the amount of the 
instalments. If the registrar refuses to accept the instalments offered or the 
creditor objects the application to pay by instalments proceeds to a hearing.

The creditor can have an examination summons served on the debtor. This 
requires the debtor to come to court at a certain time and date and be examined 
by the creditor, the creditor's solicitor or the registrar about his or her financial 
position. The summons can require the debtor to bring books or documents 
listed in the summons along to the examination. Where the tries to avoid 
examination the court may issue a warrant for his apprehension. If the debtor 
has not been examined within 14 days after the warrant issues the creditor may 
apply to the court to have the debtor arrested and brought before the court.

A person cannot be imprisoned for debt in N.S.W. unless they are trying to 
avoid a judgment by leaving Australia or by sending property out of Australia7  .

Interest claim may be added to a claim over $ 1,000.00 at a rate agreed to by the 
parties or as prescribed by the court. Interest on the judgment debt accrues at the 
rate set by the court.

4.	Bankruptcy.

(a)	Generally.

The law governing bankruptcy is contained in the Bankruptcy Act, 1966 
(Cwth). Under the Act the Federal Court is given the power to hear and decide 
bankruptcy cases.

Bankruptcy was originally designed to keep people out of goal when they could 
not pay their debts. It provides a method by which some control can be taken 
over a debtor's affairs so that the entire financial disaster can be brought to an 
end and the debtor can make a fresh start.

The Bankruptcy Act sets up a structure within which the money received from 
the sale of the bankrupt's property is distributed by the trustee to creditors on a 
pro rata (or percentage of overall debts) basis. With some exceptions, from the 
date the bankruptcy begins, creditors are prevented from taking any further debt 
recovery action at all against the bankrupt or his property.

In return for the protection from further legal action by creditors and for a total 
release from debts at the end of the bankruptcy period, the debtor agrees to give 
up to the trustee certain assets and for a time a large degree of control over his 
financial affairs. For people who do not have any valuable assets and who have 
a low income there is no real change to their control over their financial affairs 
because there is nothing for the trustee to take.

When a debtor becomes bankrupt, the bankrupt's property and any property 
acquired during the bankruptcy come under the trustee's control8  . A bankrupt is 
required to assist the trustee in the administration of the estate9  .

There are many restrictions on the bankrupt's life. A bankrupt is unable to  
obtain credit of more than $ 500.00 without informing the potential creditor of 
the bankruptcy. All bankrupts must hand over their passports, although those 
who do so are entitled to ask for their passports back during the bankruptcy, and 
a trustee must have a good reason for refusing the request. A bankrupt may not 
leave Australia during the bankruptcy without the trustee's consent.

Business bankrupts must hand over all relevant books, documents and property 
as directed by the trustee and must supply any other relevant information that is 
requested.


(b)	Procedure.

Only individuals (not companies) can be made bankrupt. Companies are wound 
up (or liquidated) under the Companies Code, 1988 (Cwth). Where there is a 
partnership it is not the firm that is made bankrupt but the individuals who make 
up the firm.

Anyone who owes a debt of any amount to another person can enter bankruptcy 
voluntarily by filing a debtor's petition at the Office of the Registrar in 
Bankruptcy. When the petition is accepted the debtor is automatically declared 
bankrupt. No fee is payable and there is no need to go before the court.

A creditor may make a debtor bankrupt only if the amount owed to that creditor 
exceeds $ 1,500.00. A combination of creditors to whom debts totalling 
$ 1,500.00 are owed may join together to make the debtor bankrupt. Although 
a creditor may threaten to make a debtor bankrupt the threat is not often carried 
out against non-business debtors as it is an expensive process. Most non-
business debtors who become bankrupt do so voluntarily.

To make a debtor bankrupt a creditor first obtains judgment for the debt from a 
court and then applies to the Registrar in Bankruptcy who issues a bankruptcy 
notice requiring the debtor to pay the debt within a set time (usually 21 days). 
A debtor who is not able to pay the debt within that time commits an act of 
bankruptcy which gives the creditor the right to petition the Federal Court (a 
creditor's petition) to declare the debtor bankrupt.

If the debtor can satisfy the court that he is solvent and given a reasonable time, 
e.g. one or two months, can pay all debts, the hearing will be adjourned; if not 
the debtor may be made bankrupt. The order of the court declaring a debtor 
bankrupt is called a sequestration order. On the making of which all the 
bankrupt's property comes under the control of the trustee.

Once the debtor becomes bankrupt the creditors can take no further action 
against the bankrupt regarding debts which were owing at the date of 
bankruptcy10  . Instead a creditor has the right to lodge a proof of debt with the 
trustee and may then receive a share of the bankrupt's property. To lodge a 
proof of debt the debt must be provable to the satisfaction of the trustee. Debts 
incurred after bankruptcy can be sued for in the normal manner.

When people become bankrupt control of their property is taken over by either a 
registered private trustee or the Official Trustee who can sell their property, 
carry on their business, sue for any debts owed to them and generally take over 
the bankrupt's affairs in order to pay the creditors.

Bankruptcy generally continues until discharge which is by an order of the 
court (whether debts have been paid in full or not) or automatically after three 
years or until unnulment. In certain circumstances it can last longer. After 
discharge all the bankrupt's remaining debts that were incurred before the 
bankruptcy are cancelled.

(c)	Property of Bankrupt.

With some exceptions a trustee can take most of a bankrupt's real estate and 
personal property, whether situated in Australia or elsewhere11  . This includes 
the bankrupt's interest in a house (whether owned alone or jointly with someone 
else), cash in the bank, jewellry, stocks, shares and debentures, fixtures and 
fittings, gifts and legacies received under a will, lottery winnings, crops and 
more. Any money owed to the bankrupt can be recovered by the Trustee.

If a bankrupt owns or is purchasing a matrimonial home which is in the 
bankrupt's name or if a husband and wife who are joint owners of a matrimonial 
home are both made bankrupt the trustee will normally sell the home. If only 
one spouse becomes bankrupt and that spouse owns a home jointly with the 
other the trustee will as soon as possible become registered as a tenant in 
common of the home with the non-bankrupt spouse or will lodge a caveat on the 
title to protect the bankrupt's interest. The registration of the trustee does not 
prevent the mortgage payments falling into arrears. If this happens the mortgage 
can sell the property.

A bankrupt's matrimonial home may be sold in a number of situations. The non-
bankrupt spouse has first option to buy, either in cash or by instalments, the 
bankrupt's interest in the home from the trustee. Where the bankrupt's interest 
in the home exceeds $ 50,000.0012   any such arrangement must be with the 
consent of the creditors or the court. A non-bankrupt spouse who cannot afford 
to buy the bankrupt's share may agree with the trustee to sell the home and 
receive equal shares of any money left over after the mortgages and expenses are 
paid. If the non-bankrupt spouse refuses to co-operated the trustee can apply to 
the Supreme Court for an order that the property be sold and the proceeds 
divided.

A bankrupt is allowed to retain a vehicle used for personal transport with a net 
equity of $ 2,500.00. Where the equity is more the trustee will seek to sell the 
vehicle. In certain circumstances the equity over $ 2,500.00 may be sold by the 
trustee.to a relative or a friend of the bankrupt. If a vehicle with a value in 
excess of $ 2,500.00 is seized and sold by the trustee the first $ 2,500.00 of 
the proceeds of that sale will be paid to the bankrupt enabling him  to buy and 
keep a cheaper car. If the vehicle is security for a finance contract and the 
bankrupt does not keep up the payments the finance company will seize the car.

A trustee can take back some property that no longer belongs to the bankrupt, 
such as property that was sold, or given away, with the intent to defraud 
creditors and not for its real value. This property can be recovered if the transfer 
was made in the five years before the bankruptcy13  .

The trustee cannot take from the bankrupt certain items14  . Ordinary clothing; 
necessary household goods (e.g. lounge suite, kitchen furniture, refrigerator, 
washing machine); tools of trade up to the value of $ 2,000.00; certain life 
assurance; moneys received for damages for personal injury; the separate 
property of a non-bankrupt spouse; and motor vehicles with a net equity of less 
than $ 2,500.00.

Where it appears that a bankrupt has spare cash, e.g. because he receives a 
substantial income, after payment of the living expenses for the bankrupt and his 
family the trustee may obtain an order from the court requiring the bankrupt to 
make regular contributions for the creditors from his wages (but not from a 
pension)15  .Where the trustee considers the court would order the bankrupt to 
make payments the trustee will suggest first that the bankrupt should make the 
payments voluntarily and so avoid the cost of going to court.

(d)	Discharge.

A bankrupt may apply to the court for an order of discharge at any time16  . If 
the bankrupt has paid enough money to the trustee to satisfy the creditors in full 
or if there are special circumstances which attract sympathy from the court, the 
discharge order may be granted early in the bankruptcy.

A bankrupt is normally eligible for automatic discharge from bankruptcy after 
being bankrupt for three years17  . If in that time an objection has been lodged 
with the Registrar in Bankruptcy, by the Inspector General in Bankruptcy, by 
the trustee or by a creditor the bankrupt must apply to the court for a discharge. 
The objection normally lapses after five years from the date of bankruptcy and 
the bankrupt is discharged. 

The grounds on which an objection to discharge can be lodged are: the bankrupt 
has failed to co-operate in the administration of the estate; the bankrupt's 
conduct has been unsatisfactory; the discharge would prejudice the 
administration of the estate; or it is possible that the bankrupt could make a 
significant contribution to the estate over a period of five years beginning at the 
date of bankruptcy18  .

Occasionally the court makes an order for discharge on the condition that the 
bankrupt continues to make payments from his income. However, the court 
cannot require the bankrupt to make payments for more than five years from the 
date of bankruptcy. After discharge the bankrupt may also continue to be liable 
for fines or debts incurred by fraud and possibly for debts under a maintenance 
order, although the court has the power to release a bankrupt fro liability to pay 
arrears of maintenance.

1	R.G. Ingersoll Address to the McKinley League, New York, 29th Oct. 1896.
2	Section 14 Limitation Act.
3	Section 54 Limitation Act.
4	Section 29 Commercial Agents & Private Inquiry Agents Act.
5	Section 528 Companies (NSW) Code.
6	Section 31 Business Names Act.
7	Ss. 113-114 District Court Act and s. 98 Supreme Court Act.
8	Section 58(1) Bankruptcy Act, 1966.
9	Section 77 Bankruptcy Act, 1966.
10	Section 58(3) Bankruptcy Act, 1966.
11	Section 116 Bankruptcy Act, 1966.
12	Rule 45A under section 135 Bankruptcy Act, 1966.
13	Sections 120 & 121 Bankruptcy Act, 1966.
14	Section 116(2) Bankruptcy Act, 1966.
15	Section 131 Bankruptcy Act, 1966.
16	Section 150 Bankruptcy Act, 1966.
17	Section 149 Bankruptcy Act, 1966.
18	Section 149(4) Bankruptcy Act, 1966.

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