Are you a creditor or a debtor who has recently received a judgment debt regarding the payment of a debt that you are involved with?
If so, there can be some confusion surrounding this, which can cause stress and anxiety as this is a serious matter for either side.
It is important that you come to understand how you can manage a judgment debt as either a creditor or a debtor, as there are several processes and options for both.
As someone involved in debt in any way, understanding judgment debt and the actions you should or can be taking is important.
In this article our legal collections team will discuss how either side of a debt judgement can act to manage or enforce it, and how this will affect the matter and the debt in general.
What is a Judgment Debt?
When considering enforcing or managing a judgment for a debt, the first consideration that must be made is what a judgment is and how it may look for you.
It is essential that you understand what a judgment is in order to deal with it, after all.
A judgment regarding a debt sets out the amount of money that is owed by the debtor to the creditor.
If a debtor has consistently failed to make debt payments or has denied the existence of the debt, they may be brought to court and receive a judgment.
If there is a dispute regarding a debt and it is brought to court and given an official judgment, the debtor will simply be required to make a payment.
Judgments must be made in a court.
The court in question, however, will be decided based on the amount of money the debt is worth.
A default judgment is a type of judgment that may be made. If a creditor makes a claim and the debtor does not respond to the claim, a default judgment will be made for the amount stated in the debt.
Judgment Debt as a Creditor
So, you are a creditor and have received a judgment stating that a creditor must make a payment. What should you do next?
A common misconception about enforcing a judgment is that the court will be involved in the collection of the debt after a judgment has been made. This is not the case.
The court will judge that a debt is enforceable by law and must be paid or there will be consequences.
However, it will still be your responsibility to ensure that the judgment is followed, and the full amount of the debt is collected.
So how can you go about collecting an enforced debt?
It is important that you understand the following concepts and apply them where necessary to aid you with this process.
Send a Letter of Demand
An important consideration that you should make when considering debt judgements is letters of demand and their implications on your matter.
Before you take the step of obtaining a judgment, you may wish to consider creating and delivering a letter of demand to your debtor.
A letter of demand is a letter sent from one party to another that demands the party to take an action or to stop taking an action. In the case of debt collection, it can be used by a creditor to demand that a debtor make payments.
By sending a letter of demand, you may be paid by your debtor or will, at minimum, have more evidence to show to the court when attempting to obtain a judgment.
Registering a Judgment
Does your debtor live in a different state? If so, you will have to register your judgment in order for it to be economically enforceable.
If you have obtained your judgment from a court outside of Queensland, for example, and your client is situated in Queensland, you must register it with a Queensland court before you can pursue its enforcement, or it may cost a lot more money.
You can do this with the magistrate's court in the area that your debtor lives in!
Enforce the Judgment Debt with Enforcement Hearings
It can be complex to enforce a judgment without the appropriate information at hand.
If you are unaware of your debtor’s financial situation and they do not outright disclose it to you, they are withholding information that is necessary for you to fulfil your right to recover your debt.
Queensland law recognises this necessity, allowing creditors to engage in enforcement hearings for this information to be shared.
To engage in this process, you must send the debtor a statement of financial position (form 71) with the requirement that it is returned within 14 days and, if not returned within this time, an enforcement hearing will occur.
Enforce the Judgment Debt with Enforcement Warrant
Once you have obtained the necessary information from the enforcement hearing for you to collect your debt, it is time to get yourself an enforcement warrant.
Not all debtors can traditionally pay their debt. Financial struggles can result in the need to resort to alternative measures.
By obtaining an enforcement warrant, you may be able to sell assets belonging to the creditor or redirect earnings from the debtor’s income to pay the debt.
This way, you can ensure that poor financial decisions or issues with creditors do not result in a financial struggle of your own and that, if your debtor is simply refusing to pay for no apparent reason, your debt is still paid.
Enforce the Judgment Debt Against a Company
If your judgment debt is against a company, statutory demands and liquidation represent a vital mechanism in the debt recovery and insolvency framework.
A statutory demand serves as a formal request from a creditor to a debtor company, demanding payment of a due and payable debt, typically within 21 days from its issuance.
If the company fails to pay the stipulated amount or neglects to apply to the court for the demand to be set aside, it is presumed insolvent. Consequently, the creditor may commence liquidation proceedings to wind up the company.
Liquidation involves the appointment of a liquidator to oversee the orderly winding up of the company, realisation of its assets, and distribution of the proceeds to creditors.
The process aims to dissolve the company in a structured manner that ensures that its assets are distributed equitably among creditors, following the legal order of priority.
Enforce the Judgment Debt Against a Person
If your judgment debt is against a person, then a bankruptcy notice and creditor’s petition are key elements within the personal insolvency regime in Australia.
A bankruptcy notice, issued by the Official Receiver on request from a creditor, serves to demand payment from a debtor who has failed to comply with a judgment or order for the payment of money.
The debtor typically has 21 days to comply with the notice, either by paying the debt or reaching a satisfactory arrangement with the creditor.
Failure to do so enables the creditor to file a creditor’s petition with the court, seeking to have the debtor declared bankrupt.
Once bankruptcy is declared, a trustee is appointed to manage the bankrupt individual's estate, which includes identifying, seizing, and distributing assets to satisfy creditor claims, adhering to the provisions and priorities outlined in bankruptcy law.
Bankruptcy has significant and long-lasting consequences for the debtor, impacting their ability to gain credit, travel overseas, and hold certain occupational positions.
Judgment Debt as a Debtor
So, you are a debtor who has received a judgment to pay a debt, and you are wondering what your options are in the matter.
It may seem like you only have one choice in this instance; to pay the debt.
Well, depending on the situation, this is not necessarily the case.
As the civil system recognises unjust debts and situations, you will not always be required to follow the direct terms of the judgment.
Furthermore, some creditors will be more reasonable than others and consider alternatives.
You have several options for how you can respond to a judgment against you to pay a debt, including:
Pay the Judgment Debt
This is the first option that likely comes to mind when one receives a judgment to pay a debt and may be the most obvious choice.
When you are served with a judgment to pay a debt as a debtor you can, of course, pay the debt as directed to and move on with business.
If this is an option for you and is the step that logically fits the agreement, you should pay the debt immediately to avoid further legal strife.
If this is the case, you will also be required to pay the judgment creditor any costs associated with the process of obtaining the judgment.
Dispute the Judgment Debt
If you do not agree with the debt or the judgment made regarding the debt, you have the option to go about having the judgment set aside.
This can be a lengthy and expensive process if your claim to have it set aside is invalid, so it is important to only dispute a judgment when you are certain that it can be disputed.
To dispute a judgment, you must apply to the court and present evidence that your claim is true and a reason that the judgment should be set aside.
For example, if you have already paid the debt that the judgment is regarding, you must provide evidence that you have paid the debt.
Negotiate the Judgment Debt with Creditor
Another option that you may wish to choose in relation to a judgment to pay a debt is to attempt to negotiate with your creditor.
Some creditors are more reasonable or willing to negotiate about the debts they are owed than others, so the effectiveness of this method will vary according to the situation.
Although there is a judgment stating that you must pay the debt in a certain manner or in a certain time frame, your creditor may be open to certain changes or agreements for the debt to be paid if you cannot afford to pay it as the judgment states.
After all, many creditors would rather avoid insolvency or bankruptcy from their clients if possible, as this can affect their debt and how much of it they are paid.
Apply to Pay the Judgment Debt in Instalments
If the judgment made does not fit your financial situation and your creditor does not choose to negotiate with you, you may choose to apply to pay your debt in instalments.
It can sometimes be unreasonable for anyone to pay a large debt immediately, which is what many judgments will tell debtors to do.
If this is the case and your creditor is not willing to allow you to pay in instalments, you can apply to the court to pay in continuous portions, rather than all at once.
The court will have full discretion to decide if this is necessary and if your application is valid, so you may be denied this ability if it is not deemed reasonable.
Consider Selling your Judgment Debt
As you can see above, getting the judgment is just the first step?
It's up to you to make sure that the decision is put into action, because QCAT won’t do it for you, and you will need to obtain legal action to enforce through the Courts.
If this sounds tough, especially if you’re busy running your business, you might want to think about selling your judgment instead.
Yes, you can actually sell it!
There are people out there who will buy your judgment because they can make money from it.
Let's talk about some reasons why selling your QCAT judgment can be a good move.
Get Some Money Faster
Selling the judgment means quick cash for your business.
Having a smooth cash flow, meaning money is consistently coming in, is super important to keep your business healthy and growing.
Save on Legal Fees
Enforcing a judgment can be expensive!
Selling it means someone else will deal with those costs, while you get paid without all the hassle and extra spending on legal actions.
Less Stress for You
The process of making sure the judgment is enforced can be stressful and time-consuming.
If you sell it, you can forget about this headache and focus more on running your business.
Avoid Risks of Enforcing the Judgment Debt
Sometimes enforcing a judgment can be risky.
There’s a chance that you might not get the money or that something might go wrong legally.
Selling your judgment lets you avoid these risks altogether.
Keep Things Professional
Trying to enforce a judgment can create tension between you and the client.
Selling it to a professional third party means they handle the tricky parts, and you can maintain a good relationship with your client.
More Financial Freedom
Selling the judgment means extra money in the business pocket, which might give you the financial boost you need, especially if times are tough.
Stay Out of More Legal Fights
Sometimes even after a judgment, the other party might challenge it, meaning more legal battles.
Selling it can keep you clear of further legal mess.
Selling Your Judgment Debt In a Nutshell
Enforcing a judgment can be a real challenge.
Selling your QCAT judgment might just be the shortcut you need to avoid further complications, extra costs, and stress, letting you focus on running your business smoothly.
But remember, it’s crucial to consider your business's unique situation to decide if selling is the right step for you.
Enforcing Judgment Debt - FAQ
Navigating through the complex landscape of enforcement of judgment debt can be intricate and potentially perplexing.
Whether you are a creditor seeking to enforce a debt or a debtor grappling with financial obligations resulting from a legal judgment, understanding the fundamental concepts and available options is crucial. The following Frequently Asked Questions (FAQs) endeavour to shed light on key aspects, procedures, and potential scenarios in the realm of judgment debts.
What is a Judgment Debt?
A judgment debt refers to the officially decided amount that a debtor owes a creditor, as determined by a court. This typically occurs after a debtor has failed to make payments or has denied a debt's existence.
How is a judgment debt enforced by a creditor?
The creditor, despite a court judgment, is responsible for enforcing the debt collection, and the court does not facilitate this. Various methods like sending a letter of demand, registering the judgment, and organizing enforcement hearings can be employed to ensure the debtor pays.
What is the role of a Letter of Demand in debt recovery?
A letter of demand is sent from the creditor to the debtor, requiring them to pay a particular debt, providing a last chance before legal action. This might help the creditor to either get paid or accumulate more evidence against the debtor.
How can a creditor enforce a judgment if the debtor is in a different state?
To enforce a judgment across state lines, for instance from a non-Queensland court to one in Queensland, the judgment must be registered with a court in the debtor’s location. This facilitates economic enforceability in the debtor's residing state.
What is an Enforcement Hearing?
Enforcement hearings are legal processes allowed under Queensland law, through which creditors can compel debtors to disclose their financial situation. This information is vital for creditors to effectively enforce the judgment debt.
How does an enforcement warrant assist in collecting a debt?
An enforcement warrant can allow a creditor to either sell assets belonging to the debtor or redirect earnings from the debtor’s income to pay the debt. It provides a legal pathway to assure payment, even when a debtor has financial challenges.
What happens when a judgment debt is enforced against a company?
Enforcing a judgment debt against a company may involve issuing a statutory demand and potentially initiating liquidation if the debt is not paid. The liquidation process allows a liquidator to manage the orderly wind-up of the company, ensuring assets are distributed among creditors.
What does bankruptcy in the context of judgment debt entail?
When a debtor individual cannot pay a debt post-judgment, and bankruptcy is declared, a trustee manages their estate, distributing assets to satisfy creditor claims under the bankruptcy law. It significantly affects the debtor's financial status, impacting credit, travel, and occupational abilities.
Can a debtor dispute a judgment debt?
Yes, a debtor can dispute a judgment debt by applying to the court and presenting evidence for why it should be set aside. However, this process can be lengthy and expensive, especially if the claim is found to be invalid.
Is it possible for a debtor to negotiate the judgment debt terms?
Yes, a debtor may try to negotiate the terms of the judgment debt with the creditor, although its success might depend on the creditor’s willingness. The creditor may accept alternative payment plans to avoid potential insolvency or bankruptcy of the debtor.
Can a debtor apply to pay the debt in instalments?
Yes, a debtor can apply to pay the debt in instalments if paying the entire debt immediately is financially straining. The court, however, will decide whether this arrangement is necessary based on the debtor's financial situation.
Can a judgment debt be sold?
Yes, creditors can sell their judgment debts to third parties who are interested in enforcing them. Selling a judgment debt can provide immediate cash flow, save on legal fees, and relieve the original creditor of the enforcement stress.
Why might a business decide to sell a judgment debt?
Selling a judgment debt allows a business to obtain quicker cash flow, avoid legal fees, reduce stress, circumvent risks associated with enforcement, maintain professionalism, achieve financial freedom, and stay out of further legal disputes.
What is a bankruptcy notice and what role does it play in debt enforcement?
A bankruptcy notice is an official demand for payment from a creditor to a debtor following a failed compliance with a judgment or order for payment. Failure to adhere to a bankruptcy notice can lead a creditor to seek to have the debtor declared bankrupt through a creditor’s petition.
What actions can a debtor take upon receiving a judgment debt?
Upon receiving a judgment debt, a debtor can choose to pay it, dispute it with relevant evidence, negotiate with the creditor for varied terms, apply to pay in installments, or in some instances, sell the judgment debt to alleviate immediate financial stress.
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