Having a garnishee order made against you can be a total nightmare. Why? Because it means a creditor can bypass you all together and go straight to your employer, bank or financial institution (with whom you have accounts) to recover any debt you owe them.
If this happens, your bank or financial institution may be directed to withhold the money in your bank accounts or your employer may be instructed to withhold wages from you
If you’ve received a garnishee order, it’s important to do something as fast as possible. The sooner you act – the sooner you might be able to stop it.
How does a garnishee order work anyway?
A judgment debt usually occurs when a debt goes unpaid, you’ve been unable to come to agreements with the creditor, and they’ve otherwise exhausted alternative debt collection activity.
Once the creditor obtains a default judgment through the court, it then opens up new legal avenues for the lender to try and collect the amount you owe. A garnishee order is only ONE of those legal avenues.
You won’t be served the order personally, rather, it’ll be served on third parties that owe you money – like the company you work for (wages) the institution you bank with (available bank balances) or other third parties who might owe you money such as tenants or contractors. Once the order is made and served on your employer, financial institution or another third party – their hands are pretty much tied. They have no choice but to comply with the orders made by the court.
A garnishee order made to your employer
If a garnishee order is served on your employer, they’ll be obligated to withhold amounts from your pay packet and direct them to the judgment creditor instead. The deductions from your income will continue until the judgment debt is paid in full, the court orders the garnishee be discontinued, or some other legislation comes into play which can stop the order – like the Bankruptcy Act.
Your employer won’t be withholding ALL of your wages though. At law, they’ll need to give you a certain amount to live on. In some states, this amount is as little as $495 per week! Yikes!
If the order will leave you in an untenable situation, it’s best to seek help immediately. That way, you can find out what your options are and work towards resolving the situation ASAP.
A garnishee order made on your bank accounts
Orders can be served on banks and financial institutions too. Generally speaking, the institution may freeze your accounts. If this happens, they might deduct the full amount owing to the judgment creditor in one payment (depending on your available funds).
Your accounts will likely freeze for a few days. By the time they’re unfrozen, the remaining balance will depend on how much you owed the judgment creditor. If you owed more than the balance of your available funds, chances are, you’ll find your accounts empty.
A garnishee order made against other third parties who owe you money
A garnishee order for debt can be made against any third parties who owe money to the debtor. Like when the garnishee is a bank or other financial institution, the order issued is usually for a lump sum of money, rather than ongoing payments. These third parties might be contractors, tenants, or any other party that owes the debtor money.
Can the ATO issue garnishee orders too?
Yep, they sure can. What’s more, the ATO doesn’t need to seek an order from the court to issue and enforce a garnishee. The Tax Act empowers the ATO to bypass this step completely.
Much like a court ordered garnishee – the ATO can seek to recover the outstanding debt you owe from employers, banks and financial institutions and other third parties. If you’re running a business, the order may also extend to merchant card and banking facilities and also trade debtors.
You can read more about ATO garnishee orders here.
How to stop a garnishee order
There are a few ways to cancel or stop a garnishee order. Keep in mind though, that the strategy most likely to work for you will depend on your circumstances.
Pay the debt in full
Pretty much as it sounds. If you can raise the money to pay the debt in full – do so, and the order will stop.
Make an alternative arrangement with the creditor
You may be able to negotiate with the judgment creditor. If the garnishee order is going to impact your ability to survive, there are options. You might be able to plead your case and ask the creditor to deduct a reduced amount instead.
The judgment creditor doesn’t HAVE to accept your proposed repayments. But they may consider it if you have a compelling reason to show that you would otherwise face undue hardship.
Make an application to pay by installments through the court
If the judgment creditor was unsympathetic to your pleas for an alternative arrangement, you could apply for an instalment order through the court. You’ll need to lodge a statement of your financial position to support your application. If the court accepts your request, any enforcement action by the judgment creditor will be stayed. This means they can’t keep garnishing you or take other recovery measures on that debt.
You’ll need to ensure you don’t default on the court approved instalment plan. If you do, the whole thing’s off and the judgment creditor can pick up again, right where they left off.
If the court rejects your application to pay by instalments, it’s likely due to one of two reasons:
- It’ll take too long to repay the debt based on the amount you proposed or;
- You can’t actually afford the amounts you offered – based on the financial statement you gave to the Court.
Utilise the Bankruptcy Act
The Bankruptcy Act will stop the garnishee order. It’ll also prevent the judgment creditor from taking further action against you. If you owe other unsecured debt, the bankruptcy act will also take care of these too.
The available options within the Bankruptcy Act are;
To learn more about bankruptcy and how it might impact you, see what is bankruptcy and how bankruptcy might affect you.
If you’re currently dealing with a garnishee order and need some advice, call us now on 1300 369 168, start a chat, or make an online enquiry to speak with an expert.