Firstly though, let’s take a step back and talk about what a garnishee order actually is.
What is a garnishee order?
A garnishee order is typically issued when a creditor you owe money to has obtained a default judgement from a court or other authority against you. The judgement then allows the creditor to issue a court order that instructs a third party such as your employer, bank or financial institution to redirect your wages or holdings to the creditor you owe money to. Once a garnishee order has been issued, your employer, bank or financial institution is legally obligated to comply with it.
Having a garnishee order made against you can be intimidating, but the sooner you act, the sooner you may be able to put a stop to the order.
How a garnishee order works
A default judgement is usually obtained by a creditor either when a debt has gone unpaid, you haven’t been able to come to any agreement with the creditor about repaying the debt, or other alternative debt collection avenues have been exhausted.
If a garnishee order is made against you, then your bank, financial institution, or employer will likely be notified rather than you. Garnishee orders can be served to anyone that owes you money, such as tenants or contractors.
A garnishee order made to your employer
If your employer receives a garnishee order, they are required to pay the ordered amount to your creditor out of your wage or salary. The payments will be taken regularly until your debt is paid in full, the court orders the payments to stop or you deploy a formal remedy that will cease the order – such as filing for bankruptcy.
Although your employer typically won’t be ordered to withhold your entire pay, the living allowance they leave you with could be a set amount, sometimes referred to as a “protected earnings amount” or a percentage of your income.
The legislation varies state to state, but in NSW, for example, the minimum amount you’re required to be left with after the garnishee is currently $504.60 per week – as determined by Section 122 of the Civil Procedures Act.
If the amount of pay you have left after the garnishee amount is deducted leaves you in an untenable situation, it’s important to understand the situation and the options that might be available so that you can act quickly to resolve the problem.
A garnishee order made on your bank accounts
Garnishee orders can be made on banks and financial institutions, compelling them to put a freeze on your accounts. If this happens, your creditor can typically take the full amount owing from your account, if you have the funds available.
A garnishee order made against others who owe you money
A court can serve a garnishee order against anyone who owes you money, so tenants, contractors or anyone else with an outstanding debt to you can be garnished without your involvement. They will usually be ordered to pay a lump sum rather than make ongoing payments.
It’s not just the courts that can issue garnishee orders
The Australian Taxation Office (ATO) can also serve a garnishee order to claim unpaid taxes. In fact, the Tax Administration Act 1953 empowers the ATO to bypass the courts and serve such an order directly via a written notice.
The ATO can serve orders on your behalf just as a court can, to recover your debt from your employer, bank, financial institution or other third parties. If you run your own business, the ATO can also try to reclaim your debt from suppliers of merchant card and banking facilities, and also debtors you do business with.
You can learn more about ATO garnishee orders on the ATO website.
Here’s how you may be able to stop a garnishee order
This is important: if a garnishee order is made against you, there are steps you can take to potentially stop it. The success of these options will depend on your individual circumstances but in some cases, showing a willingness to work with your creditors can potentially go a long way towards solving your problem.
These are some of your main options when trying to stop a garnishee order.
1. Pay the debt in full
True, if you were in a position to pay your debt in full, you likely wouldn’t be in this situation to begin with; but if you can find a way to do so, your problem may be resolved and the order could be stopped.
2. Make alternative repayment arrangements
Here’s where you might have some wiggle room to negotiate. If you get in touch with your creditor you may be able to discuss other arrangements to pay back the debt in a way that works for both of you. Your creditor may be open to decreasing the repayment amount and giving you more time to repay.
It’s important to understand that your creditor is under no obligation to accept your proposal so it’s up to you to give them a compelling reason that shows them how this solution could work. If you do have a legitimate personal reason – for example, the garnishee order will mean you can’t pay your rent – it could be a good idea to share it with your creditor, but also to ensure you’re armed with solutions.
3. Apply to pay by instalments through the court
If you’ve tried to negotiate with your creditor but they have declined your proposed alternative arrangements, you can also apply to the court to pay by instalments. You can start this process by lodging a statement of your financial position to support your application and, if the court accepts your application, the garnishee order will be stopped.
If you do go down this road, it’s crucial that you keep up with the payment plan you’ve agreed on with the court or else the garnishee order will most likely be reinstated.
The court could reject your application for one of two common reasons:
- It will take too long to pay the debt on the schedule you proposed; or
- You can’t afford to pay the amounts you’ve proposed, based on the financial statement you gave the court.
If the ATO has issued a garnishee order, it’s important to understand that this kind of notice is issued as an administrative discretion. You may be able to request that the ATO review its decision and depending on your circumstances, it may also be appropriate to seek independent legal advice on the matter.
4. Use the Bankruptcy Act
Generally, if you call on the Bankruptcy Act, it is likely your garnishee order will be stopped. If you have any other unsecured debts, this action will also likely resolve those as well.
Your options under the Bankruptcy Act include:
Part IX (9) Debt Agreements
A legally binding agreement between you and your creditors where you negotiate to repay a percentage of your unsecured debt back, usually over a three-to-five-year period.
Personal Insolvency Agreements
Similar to a debt agreement, but you must first appoint a controlling trustee to take control of your property and put forward a proposal to your creditors.
Once you declare bankruptcy your provable unsecured debt is no longer payable and any garnishee orders related to unsecured debt will immediately cease. Bankruptcy typically lasts for three years and one day. Once bankrupt, a Registered Trustee is appointed to you to investigate your financial affairs. You may be required to make payments towards your bankrupt estate, depending on your income, and assets that are not protected under the Bankruptcy Act such as property and vehicles worth more than a set limit will need to be realised by your bankruptcy trustee. This is typically achieved by the trustee selling the unprotected asset or alternatively, the trustee may agree to relinquish their interest in an unprotected asset after receiving consideration for it at market value. If you’re considering declaring bankruptcy, it’s important that you do your research and understand how it will affect you personally. You may also want to seek further information from insolvency professionals like a Registered Bankruptcy Trustee firm, prior to filing.
As you can see, a garnishee order made against you doesn’t have to be the end of the story. The best thing you can do is be aware of your options and communicate with your creditors about your situation. If you act quickly enough, you could potentially greatly improve your situation.
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Preventing a garnishee order
If you’re struggling financially, there are options available and you can explore them at any time, before you get to the point where a garnishee order is taken out against you.
From budgeting, credit card balance transfers, home loan refinancing and debt consolidation, to financial hardship applications with lenders and personal insolvency options, there are options to explore and whether they’re appropriate for your situation will ultimately depend on your individual circumstances.
If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for homeowners looking to Refinance. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value and that offer an offset account. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.
About John Papadopoulos
John is currently a manager at Aravanis, one of the largest registered bankruptcy trustee firms in Australia. He holds a Bachelor of Business, a Graduate Diploma in Accounting and an Advanced Diploma and has over 13 years’ experience in personal insolvency in addition to estate planning, tax planning, superannuation, life insurance and mortgage broking.
Cover image source: mojo cp (Shutterstock)