Financial Rights Legal Centre is a community legal centre, providing free legal advice and assistance to consumers in NSW. Here, they share some recent client stories.
*Please note: names have been changed to protect privacy.
Temporary threshold increase holds firm in Federal Court
The Financial Rights Legal Centre recently appeared for a client with a Creditors Petition issued after 25 March 2020. The bankruptcy threshold has been temporarily increased as part of the Government’s economic response to COVID-19. This case study is a good notice to any legal practitioners considering filing a creditor’s petition for an amount under the current raised threshold of $20,000.
Cameron* lives in a strata title property. He has been on the Disability Support Pension for a number of years. Last year, due to medical expenses in particular, Cameron fell behind on his strata levies. In early 2020, his Strata obtained a judgment against him for around $6,000 and, by the time Cameron contacted Financial Rights in late May, he was served paperwork to attend a Creditor’s Petition hearing. A Bankruptcy Notice had been issued and served on him in early March 2020.
In response to the COVID-19 pandemic, the Government made changes to the Bankruptcy Act and regulations which took effect from 25 March 2020, including raising the threshold of minimum amount to present a Creditor’s Petition against a debtor from $5,000 to $20,000.
Financial Rights disputed the filing of the creditor’s petition for an amount less than $20,000 after 25 March 2020. The solicitors for the Strata maintained they were entitled to bankrupt Cameron as the bankruptcy notice was issued before 25 March 2020, and sought their cost of the petition of almost a further $6,000. In our view the bankruptcy notice was valid, but the subsequent creditor’s petition was not.
Cameron was able to access his superannuation under the COVID-19 early release rules, and pay the outstanding levies and associated legal fees of around $10,000. Cameron’s Strata continued with the Creditors Petition hearing and continued to seek their costs of the Petition.
We instructed Counsel who appeared at the hearing and sought orders that the Court exercise its discretion not to award costs to the creditor. We were successful in arguing the petition should never have been presented and costs were not awarded.
Had the threshold not been temporarily raised, Cameron may have lost his home over a $6000 Strata debt.
Financial Rights Legal Centre continues to hold concerns about Strata corporations using bankruptcy as a means to pursue unpaid levies in the first instance. The fees can quickly escalate and result in the loss of peoples home. We support that the temporary threshold increase remain at $20,000.
Caution where a creditors claim to continue to enforce a judgment after bankruptcy
The Financial Rights Legal Centre recently supported a client in her dispute against a creditor after filing for bankruptcy. Nolita* filed for bankruptcy in June 2019 after her wages had been garnished a couple of times.
After she filed for bankruptcy, the garnishee order was initially stayed by the Official Trustee, but was then reinstated following incorrect instructions from the plaintiff that the debt was secured. The plaintiff took about $556 from Nolita’s wages after the garnishee order was reinstated.
Financial Rights wrote to the Official Trustee and advised that the debt was unsecured, and outlined that the statement of claim was a liquidated debt and provable in her bankruptcy. The Official Trustee once again stayed the garnishee order. We obtained permission to raise a dispute with the plaintiff to recover the incorrectly garnisheed amounts.
We raised a dispute with the plaintiff and requested that they refund the total wages that they garnished after the date of bankruptcy. We argued that the wages were incorrectly garnished because the debt was not secured (since the plaintiff enforced the debt by a liquidated claim in the NSW Local Court).
The plaintiff refused our request. We then confirmed with AFSA that the right to recover the incorrectly garnished wages did not vest in the trustee, given that the garnishee order should have been stayed from the date of bankruptcy, and that any amount Nolita recovered would be protected in her bankruptcy.
We then lodged a complaint in the Australian Financial Complaints Authority (AFCA), of which the plaintiff is required to be a member due to their credit licence, requesting a refund of the incorrectly garnished wages, plus $2,000 compensation for non-financial loss. Nolita was heavily pregnant when her wages were incorrectly garnished and she fell into rental arrears and was almost evicted from her home.
The plaintiff refunded the wages but refused our request for compensation. We asked that AFCA progress our complaint to determine whether she was entitled to any compensation. The plaintiff made Nolita an offer of $1,000 compensation, which she accepted. We again asked AFSA to confirm whether this compensation would be protected in her bankruptcy. AFSA would not confirm whether the compensation vests in the trustee, however agreed not to take any action against Nolita to recover the funds.
We thank AFSA for the sensitive approach taken for our vulnerable consumer, and we would urge all trustees to ensure that, where a creditor is seeking to continue enforcement action such as a garnishee, the debt they are relying on is closely examined.
Chief Executive Officer
Financial Rights Legal Centre