A creditor can take steps to recover a debt from you through the formal court process.
In order to recover the cost of the court fees from you, a creditor is required to give notice of an intention to sue. This may be in the form of a letter of demand or a Final Notice of Claim (Form 1A). This notice gives you 21 days in which to try and resolve the matter or seek mediation.
The creditor can then file a Claim (Form 3 for a claim under $12,000), which the court will send to you at the creditor’s request. The creditor has paid a fee to the court which is then added onto the claim amount. There are other fees that can also be added. The court does not check that the details of the claim are true. It will be up to you to accept the claim or not - for further information see Disputing a debt.
Do not ignore this form - you will lose important rights. Read the details carefully. Ask for help if you do not understand anything in the forms or you are not sure what you can do now.
You have 21 days from the date the claim was given to you to act (see options below). After that a judgment about the debt may be made and the creditor can take enforcement action against you through the court.
Judgment about the debt can happen without you being involved. If you do nothing judgment against you will be “a rubber stamp” – it will be automatic and you will not know it has happened (see 'Judgment'). You will then receive another notice from the court to enforce recovery of the debt.
See Magistrates Court (Civil) Rules 2013 r 60(1).
How will I get the court forms?
They will be delivered (served) by an authorised person working for the creditor and can be delivered to you almost anywhere (e.g. at home or work).This is called serving the claim and you do not have to be there to be officially served. It can be posted to you by the court or given to someone else at your home or work as long as they are over 14 years old. The Court officer or authorised person will do an affidavit saying how the claim was served on you. If there are doubts about what happened, you can ask for a copy of the affidavit.
What are my options?
- You can pay in full
- You can negotiate a payment arrangement
- You can sign the “consent” section on the form
Read the next section carefully before deciding what you will do next.
I don’t think I should have to pay
There may be legal reasons why you do not have to pay some or all of the debt. You can dispute all or part of the amount owing or you may be in financial hardship (see 'Disputing a debt' and 'Paying a debt'). You still have these options but must act within 21 days.
You could also take the matter to an External Dispute Resolution (EDR) Scheme if the creditor is the type of business that must be a member of an EDR scheme (see 'External dispute resolution'). It is a free service. An EDR process will stop the court action whilst the master is being investigated. Not all creditors are members of EDR schemes.
If there is not an EDR scheme talk to the court registry about what you can do to get the court to stop further court action by the creditor including filing a defence or counter-claim (if there is one). You can get legal or financial counselling advice to help fill in the forms.
You can call our free Legal Help Line on 1300 366 424.
Whatever you decide to do you must do it within 21 days of the date that you were given the claim as at the end of that time the creditor may ask for judgment to be entered on the debt. This legitimises the debt. There are a range of enforcement options the creditor then has (see 'Enforcement').
How do I file a defence or counterclaim?
To file a defence, you fill in a Defence (Form 4) and take it to your nearest court within 21 days of receiving the Claim (Form 3). Your defence must be legitimate and must be able to be proved see 'Disputing a debt'. Ask for legal advice about what you should say in your defence. Remember that if you admit the debt, but simply cannot afford to pay it, you are better off negotiating a payment arrangement. Being unable to afford to pay is not a defence to a claim, although if you dispute the amount, you should say so. Filing a defence carries with it the risk of extra legal costs if you can't prove what you say happened, and the Court rejects your defence. So get advice on whether or not your defence is valide.
If the creditor owes you money, you may be able to file a Counter Claim at the same time as your defence (Form 5). You need to pay a filing fee to lodge a counterclaim, but not to file a defence. You need to get legal advice about whether or not you have a counter-claim, or if it is a defence. An example of a counter-claim might be where you have not paid for building work, but the building work is defective and has caused you other loss.
What happens after I file a defence or other form to dispute the debt?
Once you have filed a Defence or other application with the court you will receive a notice telling you to attend a Directions Hearing. You must attend this hearing. If you do not attend within 15 minutes of the appointed time judgment may be decided against you without anything else happening. The creditor will also be required to attend the hearing [see Magistrates Court (Civil) Rules 2013 r 85].
The Magistrate or Registrar at the hearing will listen to each party briefly and determine whether there is any possibility of a resolution. The Magistrate or Registrar will encourage both parties to come to an agreement and will provide some assistance to help this happen. If the matter can’t be resolved the Magistrate or Registrar will explain the next steps.
I owe the debt – what can I do now?
You can pay in full
It is an option but be careful because it may create additional hardship for you and your family and increase the total debts you have. The creditor will probably also want you to pay their legal costs. The court process stops if you pay in full.
You can still negotiate with the creditor about making payments
You can still make payments or continue to negotiate directly with the creditor even after you receive the Claim (Form 1) from the court. If you wish to dispute the debt, get some legal advice. Depending on the nature of the debt, you may be able use an external dispute resolution scheme (see 'Disputing a debt' and 'External dispute resolution').
You can sign the ‘consent section’ on the Claim (Form 1)
If you sign this section of the claim and return it to the court it is acknowledging that you owe the money, agree with the amount stated, and that you consent to the creditor getting a court judgment against you. If you sign this section of the form you cannot file a defence later.
If you are in financial hardship or on a Centrelink payment (see 'Paying a debt'). You can go to External Dispute Resolution (EDR) if applicable. This stops further court action
What if I ignore the Claim (Form 3) and do nothing?
The court will assume the creditor’s claim is correct. The creditor will ask the court to enter judgment on the debt. This means the creditor can take enforcement action against you to recover the debt. The original amount claimed, plus costs, plus interest in some cases, becomes the amount you owe.
Will I go to gaol?
You cannot be gaoled for failing to pay your debts. However, the court can imprison you for up to 40 days for disobeying its orders, such as refusing to attend court or refusing to pay if you have the money. Imprisonment for breaching a court order is a penalty for showing contempt to the court and is not an alternative to payment of a debt. However, being imprisoned is rare and you will be given plenty of chances to rectify the problem, and you will not be imprisoned if the reason for not being able to pay is that you cannot afford to.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.