Recovering unpaid debts is often a challenge. Australia’s financial regulations provide several pathways for creditors to manage and recover debts, one of which is garnishee orders.
In this article we will discuss garnishee orders in detail, including what they are, how they work and how you can manage a garnishee notice as the debtor.
What is a Garnishee Order?
A garnishee order is a court order that allows a creditor to recover debts through third parties, such as the debtor’s employer or bank. The third party is referred to as the garnishee. The garnishee is required to pay a lump sum or instalments to the creditor until the debt is repaid in full.
For the creditor (known as the “judgement creditor”), a garnishee order is an effective way to recover a debt where the debtor has failed to take steps to repay the amount. Garnishing monies from third parties removes the need to recover the debt directly from the debtor.
How Does a Garnishee Order Work?
A garnishee order is made against third parties that owe money to the debtor, or who hold money on the debtor’s behalf (such as banks, employers and customers).
Garnishees are required to make payments to the judgement creditor (as a lump sum or instalments) until the judgement debt is fully paid.
There are two broad categories of garnishee order:
- Garnishee Order for Wages or Salary
These orders are issued on the employer of the judgement debtor. Under the order, the employer is required to withhold a portion of the debtor’s wages until the debt is satisfied.
Garnishee orders for wages must leave the debtor with a reasonable weekly income. The total amounts attached under all garnishee orders made against a debtor cannot reduce their wages to less than $570.00 per week (as at October 2023). Visit the NSW Courts website for updated garnishee amounts.
- Garnishee Order for Debts
A garnishee order for debts can be issued on banks, financial institutions and other parties who hold money on behalf of the judgement debtor (such as customers and tenants).
Garnishee orders for debts are typically satisfied as a lump sum payment. Banks and financial institutions are required to leave the debtor with the weekly compensation amount, plus $20.
Payment of the debt is expected to be made within 14 days of the order being served.
Creditors are permitted to issue multiple garnishee orders if a single order is insufficient to recover the judgement debt. For example, a creditor that is owed a large debt may garnish wages, savings and monies that are paid to the debtor during the sale of an asset, such as their home.
Garnishee orders are managed by each Australian State and Territory. Speak to an adviser for help with applying for a garnishee order in your jurisdiction.
Who Can Be Served a Garnishee Order?
Garnishee orders are served against parties that owe money to, or hold money for, the judgement debtor. This includes:
- Employers owing wages and/or salary to the debtor
- Banks with accounts in the debtor’s name (the bank is required to locate all relevant accounts)
- Investment accounts in the debtor’s name (if the account has not matured, the garnishee order will remain until the account reaches maturity)
- People or businesses who owe money to the debtor (e.g. tenants and customers)
- Parties who will owe money to the debtor in future
- Superannuation funds (the garnishee order does not become effective until the superannuation benefit is payable)
- Life insurance policies (the garnishee order does not become effective until life insurance monies are payable)
- Solicitors, accountants and other professional service providers who hold money in trust for the debtor
- The proceeds of sales (e.g. if the debtor sells a property, the judgement creditor may issue a garnishee order to the purchaser)
Garnishee orders can also be issued against third parties who received a payment from the debtor prior to the order.
The creditor cannot issue a garnishee order against joint bank accounts.
What to Do if a Garnishee Order is Made Against Your Debt
As the judgement debtor, the garnishee order will not be served to you directly, but there are several ways you can navigate the situation. You can:
- Pay the debt in full. If you are able to do so, paying your debt in full will stop the garnishee order immediately.
- Negotiate with the creditor. Debtors are permitted to negotiate more manageable repayment terms with the judgement creditor. You can contact the creditor or their representative. This may involve offering an alternative repayment schedule, reducing the judgement sum or setting up a payment plan.
- Apply to the court for an instalment plan. If you are experiencing financial difficulty and the judgement creditor is unwilling to negotiate, you can apply to the court for an instalment plan. The court may reject instalment plans if it will take too long to repay the debt.
- Declare bankruptcy. Most garnishee orders will cease if you declare bankruptcy. The remaining amount of your debt will be included in the bankruptcy, and the judgement creditor will receive a dividend as normal. Bankruptcy will have a lasting impact on your life and should be considered a last resort.
Courts make an effort to ensure garnishee orders are reasonable and that the debtor is left with sufficient income to afford modest expenses. If a garnishee order is made against your debt and you are experiencing disadvantage or financial hardship, you can apply to the State or Territory authority to approve full or partial refunds of monies that have been garnished.
This may occur if you experience a hardship such as medical expenses. You will be asked to provide evidence of hardship if you are applying for a refund of garnished monies.
ATO Garnishee Notices
Creditors are not the only parties that can issue a garnishee order. The Australian Taxation Office (ATO) may also issue a garnishee notice for unpaid tax debts.
Under the Taxation Administration Act 1953, the ATO can issue a garnishee notice without the need for a court order. As with garnishee notices made by creditors, orders may be served to employers, banks, financial professionals and anyone who owes money to the debtor.
ATO garnishee notices are not included in bankruptcy if they are issued prior to the appointment of the Trustee.
Do Garnishees Need to Comply with Garnishee Orders?
Garnishees have a legal requirement to comply with the terms of a garnishee notice.
The creditor can apply to the court to make the garnishee liable for the amount of money to be recovered if they fail to meet the terms of the garnishee notice.
Garnishee Order vs Bankruptcy Notice
Creditors are provided several options to recover monies they are owed. In many cases, garnishee orders provide better returns to creditors than bankrupting a debtor.
Garnishee orders are also the preferred method of retrieving money because they do not rely on the debtor to repay a debt. Instead, money is taken straight from the debtor’s sources of income. Garnishing wages is an effective way to recover small debts. Garnishing bank accounts is the better option for creditors wanting to resolve the situation quickly.
If an individual owes you $10,000 or more, and you are unable to recover their debt through a garnishee order, you may apply to the court to make them bankrupt. This typically provides low returns, but it may be the best course of action.
Bankrupting a debtor should be a last resort. Speak to an insolvency practitioner before applying to make a debtor bankrupt.
Speak to SV Partners to Learn More About Garnishee Orders and Your Obligations
Garnishee orders are an effective way for individuals and businesses to recover debts they are owed. Issuing a garnishee order is simple, affordable and provides better returns than some of the alternatives. If you need to issue a garnishee order, or if your debt is subject to an order and you need support, speak with SV Partners.
The team at SV Partners are experienced advisers and insolvency professionals. We partner with businesses and individuals to help with managing financial difficulties, bankruptcy and matters such as garnishee orders.
Our team can discuss your options and help decide how to manage your debts or design effective strategies for recovering money you are owed. You can contact us online to make an appointment, or call us directly for a confidential consultation.