If you’re struggling with overwhelming debt, it’s possible your creditors may seek alternate measures to get their debts repaid. One of these options is to pursue a default judgement from the courts in the form of a Garnishee Order. A Garnishee Order will not be served on you personally, instead, it will require your bank, financial institution, employer or other third party to redirect the money you owe to the creditor directly. In other words, a creditor can bypass you completely and access your funds without you knowing. It’s likely you won’t find out about the Garnishee Order until you see your bank statement or pay slip.
A Garnishee Order will only occur on a judgment debt. A judgment debt is a debt that a court may order to be repaid. This may happen when:
- The debt remains unpaid,
- You’ve been unable to reach an agreement with the creditor, and
- The creditor has exhausted alternative debt collection activity.
Having a Garnishee Order issued against you can be a nightmare, which is why it’s best to seek professional help as soon as possible. At Revive Financial, our business debt experts can help you understand your options moving forward.
Who Can Issue a Garnishee Order Against You?
A Garnishee Order can be issued against you by:
- A creditor receiving a default judgment through the court, or
- The Australian Taxation Office (ATO).
The ATO, however, has the ability to bypass the courts and administer a Garnishee Order directly via written notice.
How Does a Garnishee Order Work?
A Garnishee Order can be sent to one of three places to recover a creditor’s debt:
- Your bank or financial institution that is holding money for you
- Your employer
- A third party who may owe you money
Recovering Debt from your Bank or Financial Institution
When a Garnishee Order is sent to the bank or financial institution that holds your money, they may freeze your bank accounts and deduct the full amount of money owing to the creditor in one payment. This, however, depends on your available funds. If you owe a creditor more than the balance of your available funds, your accounts may be empty.
Recovering Debt from your Employer
Your employer will have to withhold certain amounts from your pay and instead direct them to the creditor who you owe the debt. By law, your employer will not withhold all of your wages – they will need to give you enough to live on. The deductions from your income will continue until either:
- The debt is paid in full,
- The court orders the garnishee be discontinued,
- The ATO decides to withdraw the garnishee,
- You declare bankruptcy, the ATO garnishee will be stopped when the debtor is discharged from bankruptcy (usually three years), or
- You declare bankruptcy and/or change employment.
Recovering Debt from a Third Party
Any third party who owes money to you such as a contractor, tenant or income protection insurance company may be issued with a Garnishee Order. Similarly, to when a Garnishee Order is served to a bank or financial institution, the order is generally issued as a lump sum rather than paid in instalments.
Here's an example of a personal Garnishee Order.
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How to Stop a Garnishee Order
Garnishee Orders compel banks, employers and other third parties to fulfill the requirements of the notice and therefore are unable to be stopped. However, there are some exceptions which depend on your individual circumstances. Maintaining a positive relationship with the creditor can help during alternative negotiations.
Pay the Debt in Full
If you can raise the money to pay the debt in full, it’s the quickest and easiest way to stop the Garnishee Order.
Negotiate with the Creditor
Negotiating with the creditor who has issued the Garnishee Order may help you avoid more drastic outcomes such as a property being repossessed for sale, or enforcement costs being added to the debt.
By letting the creditor know your financial circumstances, you may be able to negotiate an alternative payment arrangement that works for you both, potentially decreasing the repayment amount and giving you more time to repay the debt.
If you have a specific reason, such as facing undue hardship if your money were to be garnished, the creditor may consider your proposal and the Garnishee Order may be stopped.
Apply to Pay the Debt in Instalments
If you’ve tried to negotiate with the creditor and they have rejected your proposal, you can apply to the court to pay your debt in instalments. To start this process you need to lodge a statement of your financial position to support your application. If the court accepts your application, the Garnishee Order will be stopped.
If this option works best for you, you must keep up with the payment plan you’ve agreed on with the court. If you miss a payment, it’s likely the Garnishee Order will be reinstated and you will risk further legal action by the creditor.
Use the Bankruptcy Act
Generally, if you utilise the Bankruptcy Act and enter into a Part IX (9) Debt Agreement, Part X (10) Personal Insolvency Agreement or declare Bankruptcy, the Garnishee Order will be stopped and creditors will be unable to take further legal action against you. If you also owe other unsecured debts, the Bankruptcy Act will cover these too.
Seek Professional Help
If you’re facing financial hardship, there are solutions available to help get your finances back under control before you reach the point where a Garnishee Order may be needed to enforce payment. Once a Garnishee Order has been served, it’s important to obtain professional advice as soon as possible about the best course of action in your circumstances.
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If your business uses XERO for its accounting, you can receive an instant score and suggested actions based on your personal situation, using our free Business Viability Tool. Alternatively, get in touch with our team of financial professionals on 1800 861 247.
