What’s the real cost of your debt?

Image: Martin Kinglsey

We all know how quickly bills can pile up and, when times are tough, it can be tempting to ignore overdue notices and demands from creditors. But even small debts can lead to serious long-term repercussions, particularly if your case is one of the thousands that incur a default judgment in the Magistrates’ Court each year.

In 2005/06, the Department of Justice reported that more than 30,000 complaints for civil consumer debt matters found their way to the Magistrates Court – 84% of these cases were for claims of less than $10,000 and 23% were for less than $1000. Most were decided by default judgment, with often disastrous implications.

In May, we gave the Consumer Action Law Centre a general grant of $33,523 to research default debt judgments in Victoria to understand why thousands of Victorians fail to seek legal help in relation to relatively small debt claims.

Consumer Action Law Centre provides free legal advice and representation to vulnerable and disadvantaged consumers across Victoria and is the largest specialist consumer legal practice in Australia.

Gerard Brody, Director of Policy and Campaigns at the Consumer Action Law Centre, tells us about the project and how it will help improve the lives of Victorians.  

Tens of thousands of Victorians incur default judgment in the Magistrates’ Court each year. In fact, court statistics show that up to 98 per cent of civil complaints in the Magistrates’ Court of Victoria end in default judgment.

A default judgment occurs when a demand for money is made through the court, and a consumer does not defend the matter. This means a judgment is made without any independent checking of the claim – and without any consideration of a person’s personal situation. Many default judgments are sought by large financial services companies, councils and debt collection agencies.

The impact of default judgments on a person’s financial wellbeing can be severe. It can lead to harsh debt collection tactics. There is also the potential for seizure of property or garnishing of wages, or bankruptcy or debt administration. This kind of action is allowed for fifteen years after a judgment is entered. Default judgments are also placed on credit reports for five years (and bankruptcy information for seven), which  restricts a person’s access credit in the future.

Many of the Victorians who contact legal and financial counselling services about default judgments do so after the judgment is entered. It appears many have not sought information, advice or support. If such information, advice and support is sought early, judgments can be avoided and the impact of debt on individual’s lives and wellbeing can be reduced.

There is a range of advice and support that might be provided to help prevent a default judgment —including advice about whether the debt is owed, or whether the person has a legal defence to the action. They can get help to set up a payment arrangement,  access creditor hardship programs or to protect and understand their rights around debt collection. There are also special protections that apply to social security income.

A person who receives and acts upon this information will be in a far better position than if a debt proceeds through default judgment processes.

Our research project will involve in-depth interviews with default judgment debtors from a variety of backgrounds. This approach will enable discussion of debtors’ experiences, the meaning they attach to those experiences, as well as the complex contexts which frame decision-making. The research will explore the assumptions made by people about the law and issues around access to and knowledge of services and legal assistance. In addition, we hope that the interviews capture the emotional aspects of avoidance, shame and anxiety which may play a part in the decision-making of people who have had proceedings issued against them and don’t respond.

Through providing insights into the experience of low-income debtors who have a default judgment, the research will seek to make recommendations to improve access to information, advice and support for low-income debtors. A final report will be released early in 2013. The research may also provide an evidence base from which to consider improvements to court processes so that claims are assessed fully, taking into consideration the lived experience and needs of debtors.”

Looking for funding for your own legal project?
Each year, we fund projects about the law that benefit Victorians. Your project could be one of them. Applications for our next round of general grants close 12 September 2012. Small grants are available year round, if your project budget is less than $5000.

Contact our Grants and Awards Manager on 03 9604 8100 to talk about your project or idea, and to find out more about the support we offer to grant applicants. Or read about other general grants awarded by the Foundation.

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