Reasons you might not have to pay your debt

You may not have to pay your debt if ...

You disagree with the contract

You may disagree that you owe any money. You may have a defence to a debt if, for example, you agreed to a contract but:

• you were told something that was not true (you were misled into signing)
• you were forced to sign or were taken advantage of (even by a family member)
• a law has been broken.

If you think you have a defence or you disagree with the debt get legal advice fast. You only have a short time to act. You need to file a defence in court. You can get legal help to do this.

You get a payment from Centrelink or Workcover

If your only income is from a Centrelink payment, a court will not make you repay your debt from this income. Workcover payments are usually protected too.

You might also be judgment proof. This is where your only income is a Centrelink or Workcover payment and you:

• do not own and are not buying a house
• do not own any significant assets, for example, savings or expensive antiques. Basic household goods, such as your fridge or washing machine, are not significant assets
• own one registered car worth less than $7500.

However, if your income is protected but you decide to apply for an instalment order at court then you lose this protection.

Your debt is too old

You may not have to pay an old debt if for six years you have not:

• made payments on the debt
• said in writing that you owe the debt
• had any court orders made against you.

This is called a statute barred debt.

If you are not sure if your debt is statute barred get legal advice before you speak to your creditor or make repayments.

Note: The period is 15 years, not six years, where:

• the debt is secured by a mortgage over property
• there is already a court order to repay.

Where there are mortgages over property, the law is complicated so get help. To find out if an order has been made about your debt you can get a copy of your credit record or contact the Magistrates’ Court.

If the creditor asks you to pay an old debt, get other support. They must prove that the debt is yours and less than six years old (or 15 years old in some cases). If they cannot, and you have not agreed you owe the debt, or started to pay some of it, they cannot force you to pay.

If the debt is statute barred, then this is a defence if the creditor goes to court.

You are or may become bankrupt

It is common for people to get into debt because they are trying to pay off too many things at once. Sometimes an offer of part-payment can work. Or, as the debts pile up, you might choose to become bankrupt.

Bankruptcy gives you a legal right to protection from your creditors. You hand over control for most of your debts and significant assets to a bankruptcy trustee. Not all debts will be cancelled by bankruptcy.

Get other support for debt and financial issues.

Your options before a court order or judgment

Once you know your rights, write to the creditor to explain why you think you don't have to pay. For example:

• you legally do not have to pay the debt (for example, if the debt is an old debt you may be statute barred)
• they will not be able to get money from you (for example, if you are receiving payments from Centrelink or Workcover you may be judgment proof).

You need to be certain that your debt is statute barred or that you are judgement proof before you write to the creditor. If you are not sure, get help from a financial counsellor or one of the free services listed in Other support for debt and bankruptcy. The creditor may still start court action. If so, get legal help.

Is the debt gone forever?

Not always. If the debt is statute barred, or your bankruptcy period has passed, then it is probably gone.

Otherwise, if you get money in the future – for example, if you are on Centrelink payments now but get a job later – the creditor may be able to get back the money you owe them.

Any remaining debt will get bigger because interest will be added, so the creditor may get back more money than you originally owed.

Other support

Know your rights before you do anything. Find out how you can get other support for debt and bankruptcy.