Author
Domenic CalabrettaChief Executive Officer & ASIC Registered Liquidator
A garnishee order is a serious legal matter as it means a court order has been implemented to allow creditors to recover debt from third parties. They can do this in a number of ways, including taking money from the debtor’s bank account and/or from their salary. If you are issued with a garnishee order you should act quickly to explore your options and make an informed decision about your next step forward – otherwise, the situation will only get worse.
Mackay Goodwin specialises in helping businesses manage financial distress. If you need assistance handling a garnishee order, contact us for expert advice.
How does a garnishee order work?
A garnishee order for debts is issued by the court at the request of a judgment creditor. The order directs a third party (the garnishee)—typically a bank, employer, or another entity owing money to the debtor—to redirect payments to the creditor instead.
There are three common types of garnishee orders:
1. Wage garnishment in Australia
One of the most common garnishee orders is for wages. A garnishee order can allow the judgment creditor to recover debt from the debtor’s wages and salary..
Once the court makes its judgement, the creditor serves the order to the debtor’s employer. The employer then takes a sum of money from the creditor’s wage to pay to the creditor. This wage withdrawal may continue until the entire debt has been repaid, or until the court otherwise stops the order.
Employers must leave the debtor with a minimum weekly amount for living expenses, which is adjusted twice a year. As of October 2020, this amount was set at $527.40 a week in New South Wales. In this state, the employer is also allowed to deduct an additional $13 for administration expenses. Updated amounts can be found here.
Debtors with employers subject to a garnishee order can apply to the court to repay their debt in other small instalments, or to have smaller sums deducted from their wages each week.
2. Bank account garnishee orders
The court can also make a garnishee order to recover debt from your bank account. Unlike wage garnishment, a garnishee order in banking usually directs the garnishee (your bank or financial institution) to repay the debt outstanding in a single sum.
The bank will usually put a freeze on the bank account as it processes the garnishee order, which means the debtor will be unable to access their account for a period of time (usually two to three working days).
The garnishee in this case is also allowed to deduct $13 for processing and administration. Centrelink payments sitting in the debtor’s bank account may be protected in whole or in part from garnishee orders, however, sometimes they are also garnished; this will vary, depending on context.
3. Recovering debt from third parties
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.
What about ATO garnishee notices?
ATO garnishee notices work in a similar way to court-ordered garnishee orders. The ATO is empowered under the Taxation Administration Act 1953² to recover outstanding tax debt from third parties by issuing a garnishee notice directly, without an order from a court. Like court-issued garnishee orders, these notices are issued against parties (businesses and individuals) who hold money for tax debtors, or may hold money for tax debtors in the future.
These notices require the garnishee to pay the ATO directly for the debtor’s tax debt, and the debtor will also receive a copy of the notice. Possible third parties or garnishees include employers, contractors, and banks and financial institutions at which the debtor has accounts.
If the debtor is part of a business, the notice could be issued to garnishees such as banks, trade debtors, and those that supply the debtor with merchant card facilities.
What can I do to stop a garnishee order?
Garnishee orders compel banks, employers and other third parties to fulfil the requirements of the notice, and therefore cannot be stopped. The only possible exception to this is when the debtor can pay the amount in full, or make arrangements to have the outstanding amount paid in instalments. However, there are steps businesses can take to mitigate financial strain.
Self Representation
Debtors should be aware that self-representation is common with respect to garnishee orders, as in many instances, they involve small claims. Those seeking to recover debt can find all of the relevant information and forms on the Law Access website. It is useful for debtors to be well aware of the process as it provides details concerning negotiations and payment methods.
Negotiating with the creditor
One possible option for debtors and garnishees who are unable to meet the garnishee orders demands is to negotiate with the judgment creditor on the terms of payment. This could help debtors avoid more drastic outcomes such as property being seized for sale, or enforcement costs being added to the judgement debt. Debtors that successfully negotiate with creditors should have their agreement made out in writing.
Apply to court
If unsuccessful in their negotiations, debtors have the option to apply to court to pay the debt in instalments. Debtors who find themselves in this situation should consult a debt or insolvency specialist for advice.
Financial hardship and disadvantage
Those whoare experiencing financial hardship and/or disadvantage might be able to have the relevant enforcing authority (such as the State Debt Recovery Office for New South Wales) approve partial or full refunds of the money that has been taken by the creditor. These circumstances may be related to serious medical problems, or some other extenuating circumstance. The debtor in this case would need to provide relevant evidence of their hardship to the enforcing authority.
Summary
Those who have been served a garnishee order should do the following:
- Do not ignore it. A garnishee order is an order from the court and a failure to deal with it appropriately will limit any opportunities to receive a favourable outcome.
- Apply to the court for a stay of enforcement
- Pay the judgment debt or negotiate
- Apply to the court to pay by instalments
- Apply to the court to set aside a default judgment.
References:
https://www.ato.gov.au/individuals-and-families/paying-the-ato/if-you-don-t-pay
https://www.legislation.gov.au/C1953A00001/latest/versions
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