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Law Current to: October 13, 2025
General options for dealing with debt
Statute-barred debt – is the debt too old to be legally enforced?
If your client has not made any repayments towards the debt or acknowledged the debt in writing for over 6 years, the debt may be unenforceable: s 10 Limitation of Actions Act 1974 (Qld). If this is the case, advise the client not to make any repayments or acknowledgement of the debt.
If you think the client has made repayments or acknowledged a debt that should have been statute barred, consider whether the conduct of the creditor or debt collection agency was misleading or deceptive in eliciting that payment or acknowledgment from the client.
A creditor or debt collector must not mislead a debtor about the legal status of a debt including statute-barred debt. See section 20 of the ACCC’s Debt collection guideline for collectors and creditors.
When writing to a client or writing to a creditor on behalf of a client we should be cautious not to inadvertently acknowledge the debt.
Clients that are judgment proof
Even if we determine a client is legally liable for a debt, we may be able to negotiate a complete waiver of the debt on the basis that enforcement action would be impractical and uncommercial. That is, that our client is ‘judgment proof’.
A client will be judgment proof if their income is from a Centrelink payment, and they have no assets that can be seized to pay the debt. Generally, a person is entitled to:
- their Centrelink payment. Our client’s Centrelink benefit is inalienable pursuant to section 60 of the Social Security (Administration) Act 1999 (Cth);
- if a veteran, their veterans’ payment. Our client’s veteran benefit is inalienable pursuant to section 125 of the Veterans’ Entitlements Act 1986 (Cth);
- basic household goods that are recognised as exempt property under section 116(2) of the Bankruptcy Act 1966 (Cth). The regulated property is outlined in reg 6.03 Bankruptcy Regulations 1996 (Cth);
- one registered car worth less than $9,400; or
- tools of trade worth less than $4,350. These amounts change periodically – for the most up to date figures go to the Indexed amounts | Australian Financial Security Authority.
Where our client receives a Centrelink benefit and has no assets of a commercial value, a creditor may be able to obtain judgment but are unable to enforce it.
When and how do you rely on a client being judgment proof?
If a client is experiencing genuine financial hardship, the best option may be not to pay anything towards the debt. If the client is unable to afford to pay for food and rent (and they don’t have any assets), a payment plan may not be appropriate or sustainable.
While a complete waiver may not be the best outcome for all our clients, it can have a significant positive impact on people experiencing genuine financial hardship.
It can be expensive to pursue a debt or to seek judgment. Many creditors will agree to cease, waive or write-off a debt where we can establish a client has limited assets or income, and that it wouldn’t be in the creditors commercial interest to continue pursuing the debt. This template letter may help us to put this argument to a creditor.
You should discuss with your client the consequences of relying on being judgment proof. It is also important to consider the further stress for our client (both financial and emotional) if the creditor refuses to resolve the debt by negotiation.
Remember that some clients are trying to ‘get back on track’ and may give instructions that they would prefer to enter into a payment plan to slowly pay the debt. You should also think about your client’s relationship with the relevant creditor. Some clients may need to preserve their relationship with the creditor or continue to receive the service. This is particularly relevant when the debt is connected to a vital service, such as electricity or telephone services.
Potential consequences for seeking a waiver
The client should be made aware of the following potential consequences of not paying a debt and relying on being judgment proof.
Interest and costs
If the matter is not resolved through negotiations, your client will likely incur default interest and enforcement costs that the creditor may seek to enforce in the future.
Litigation
A creditor may seek to commence proceedings to recover the debt or to protect its interest in the event the client’s circumstances improve. While this is possible, it is less likely if the creditor is made aware that the client has no assets to enforce the judgment against.
Judgment
If the client does not defend the claim, or defends the claim unsuccessfully, and the creditor applies for judgment, the court will order that the debt is owed.
Default on credit report
A creditor may list the debt on a person’s credit history report, if they haven’t already.
Bankruptcy
In some circumstances, the creditor can apply to have the client declared bankrupt. However, as this process is both timely and expensive, it is unlikely a creditor will take this step where it becomes aware of a client’s vulnerable financial circumstances.
Case Study – judgment proof
Blake is suffering from financial hardship. Blake is currently homeless and unable to afford basic necessities like food. He is unable to meet the repayments of his small amount loan.
We first contacted the lender and provided authority for them to speak to us signed by Blake. We requested that they direct all contact to us and not contact Blake, and that they cease all debt collection activity whilst we obtained Blake’s instructions.
We asserted that Blake had no capacity to repay the debt and sought a debt waiver. In this instance the lender asked for material to support this position.
We worked with Blake to prepare a statement of financial position which demonstrated that he had no valuable assets and no income other than his Centrelink Payments. We prepared correspondence to the lender attaching the statement.
On the basis of Blake this information, the lender accepted that Blake was judgement proof and agreed to a full waiver of the alleged debt.
Dealing with conduct relating to debt collection
Our clients may experience particular stresses associated with collection of debts even if the debt collection activity is not excessive. There are a number of options to deal with this.
Debt collectors must have a good reason to contact a client and should take into account a client’s circumstances and any reasonable requests about how and when a client can be contacted. Contact should be limited to within particular hours and at particular level of frequencies. The MoneySmart resource sets out those figures as well as debt collection guidelines: Dealing with debt collectors: Your rights and responsibilities.
To take some of the stress of your client immediately, it may be appropriate to contact the debt collector and request that all debt-related discussions be directed to LawRight, an appointed solicitor, financial counsellor or guardian. If the client wishes, they may also choose a particular method of contact, e.g., in writing only. Your client will need to sign an authority to act which you can then forward on to the debt collector with the relevant request. Importantly, the debt collector must observe this request.
If the debt collector continues to contact the client, or if there has been excessive debt collection activity or harassment then there may be grounds for making a complaint. You should first make a formal complaint in writing to the debt collector. If this does not stop the problem, you should make a complaint to the relevant external dispute resolution scheme (see page 23 of If the debt collector continues to contact the client, or if there has been excessive debt collection activity or harassment then there may be grounds for making a complaint. You should first make a formal complaint in writing to the debt collector. If this does not stop the problem, you should make a complaint to the relevant external dispute resolution scheme.
Switching off direct debit arrangements and recurring payments
There are different methods for switching off or cancelling automatic payments depending on whether a client’s payments are from a savings or cheque account, or a credit or debit card. Regular payments from a client’s:
- deposit accounts are called ‘direct debits’. This is where the client has given their deposit account details (BSB and account number) to allow a merchant or service provider to debit their account regularly to pay for the services they provide to the client;
- credit or debit card are called ‘recurring payments’. This is where the client has given their credit or debit card details (card number, expiry date and security code) to allow a merchant or service provider to charge their credit or debit card regularly to pay for the services they provide to the client.
A bank is required to give the client a list of direct debits and recurring payments on its accounts for the previous 13 months, if the client asks for it. This list will only include those direct debits and recurring payments that are known to the bank from the information it receives about the client’s transactions.
It is recommended that the client keep details of when and how they cancelled the direct debit or recurring payment. For example, make a note of when the bank was informed, or keep a copy of any email sent.
It is important to inform the client that while stopping or cancelling a direct debit will prevent future payments from being debited from their account, any contractual arrangements between the client and the merchant may remain in place. The client should contact the merchant or service provider to inform them the payments have stopped, as there may be implications under the client’s contract.
For example, if the client still owes money for a service or utility, an alternative payment method will need to be negotiated. If the client no longer requires the merchant’s service, the client will have to cancel their arrangement with them where possible.
To switch off a direct debit arrangement or recurring payment:
Step 1: Contact your bank.
The client must tell their bank to cancel the direct debit or recurring payment. This can be done by phone, email, online, or in person. The cancellation can be immediate or set to commence on a future date.
Once the bank has been told to cancel a direct debit, they are obliged to make sure no more payments are debited from the client’s account.
If the payment is a direct debit (a debit from a savings or cheque account), there is no further need to contact the business the client is paying. However, if the payment is a recurring payment (a debit from a credit or debit card), the client must also notify the business it is paying – see step 2.
Step 2: Contact the business being paid (recurring payments only).
If the client’s payment is a recurring payment, then the client must notify the business it is paying, in writing, before or at the same time as the client notifies its bank.
