2013 Credit & Debt - PPSR. Notes by Catherine Uhr, March 2013

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1 2013 Credit & Debt - PPSR Notes by Catherine Uhr, March 2013

2 Credit and debt for vulnerable clients

3 Creditor options Default list with Veda (credit reporting) Get the keys (voluntary surrender or abandonment) of the asset and sell Repossession as mortgagee exercising power of sale Obtain judgment for a liquidated sum and- Bankruptcy Warrant of execution over land Warrant of execution (goods) Examination of judgement debtor Garnishee wages or bank account Sell (assign) the debt Reach a further agreement with the debtor

4 Enforcement 6 creditor options Default listing with Veda Advantage Bankruptcy Sell secured asset Uniform civil procedure rules: Garnishee wages Warrant home Examination of debtor Warrant goods

5 Debtor options Before judgment:- Request a hardship variation Defend the debt- Statute barred (generally 6 years from last payment) Hardship refusal or non response Claim on insurance Unjust contract (now incl irresponsible lend, unfair terms) Non compliant contract (procedure and form(code) Breach of state interest rate caps Usual contract defences (ie capacity) Equitable defences (non est factum) Complain to the creditor s external dispute resolution scheme Surrender the asset (s 85) Introduce a buyer (s 103) Sell the asset with creditor s consent (version of hardship variation) Early release of superannuation(no point if having to sell anyway) Apply for State Govt mortgage relief (strict criteria) Bankruptcy Debt Agreement under Part 9 or 10 Bankruptcy Act Reach agreement with the creditor to pay debt by instalments Additionally even after judgement:- Apply to the court for instalment order Request waiver on compassionate basis Complain to FOS about costs or undervalue sale by mortgagee Request a stay of default judgment from COSL (limited circumstances)

6 Debtor options: Short term hardship - credit S 72 National Credit Code- Right to hardship variation to get loan back on track Industry codes of practice support this right Independent umpire can put recovery action on hold up til after court claim to consider hardship application Financial Ombudsman Service.

7 Can essential household goods be mortgaged? S 50(2) National Credit Code prohibits a mortgage over essential household property unless the mortgagee supplied the goods. Section 116(2)(a) of the Bankruptcy Act excludes household property prescribed by regulation from property that is divisible amongst creditors. Regulation 6.03 of the Bankruptcy Regulations 1996 sets out what is household property for the purposes of section 116 S 47 PPSR Act provides that household and personal goods under $5000 are free of security unless the mortgagee supplied the goods and they have a serial number. Enhancement Act to National Credit Code prohibits security over small amount credit contracts.(s 5(1)(e) commences 1 March 2013.

8 Can essential household goods be mortgaged? Only if the finance was used to purchase the goods, Otherwise NO.

9 Unsecured debt and a court order warrant to seize and sell assets In Queensland, personal necessities and household goods are also protected from warrants of execution over goods. The UCPR (Qld) defines exempt property as the definition in the Supreme Court of Queensland Act 1991 Schedule 2. This is property that is not divisible among the creditors of a bankrupt under the relevant bankruptcy law as in force from time to time. In Victoria, s 42(1) Supreme Court Act 1986(Vic) takes the same approach. Both states specify that exempt property from seizure matches the property protected in bankruptcy. In NSW almost all household property (excluding Clothing, bedroom or kitchen furniture Work or study tools, instruments or books up to the value of $ ) is available for a sheriff to seize.

10 Can unsecured debt result in loss of essential household goods following court judgment? Goods protected in bankruptcy and in Victoria And Queensland But not NSW.

11 Judgement proof Social security income exempt from collection Protection of social security payment 60.(1) A social security payment is absolutely inalienable, whether by way of, or in consequence of, sale, assignment, charge, execution, bankruptcy or otherwise. If a client is solely reliant on social security then their income is protected from garnishee (see s 62(1) for how savings in pensioner s bank account are treated.) The SSA provisions are repeated in other social security legislation where benefits are provided. The philosophy is that this income does only provides for basic living expenses. Other income In NSW debtors get to keep an amount equal to workers compensation weekly benefit (currently $403) and any higher income is able to be garnished. In Victoria 80% of earnings are quarantined from attachment of earnings orders. In Queensland, any judicial wisdom of a reasonable quarantined income, is kept in internal guidelines and not contained within the rules

12 Judgement proof if: Don t own house Don t own car -with equity of more than $7 200 Reliant on centrelink long term and this unlikely to change Not in NSW?

13 Collecting credit debt? What does the NCCP say? (New!)General Conduct obligations on licensees (s 47) require all things necessary to ensure that credit activities are engaged in efficiently, honestly and fairly. Licensees are required to be members of an ASIC approved external dispute resolution scheme (47(1)(i). (New!)Assignees are treated as credit providers and require a license (s 10), simple debt collectors (agents) who have not purchased debt don t need their own credit license. (New!)Div 2 applies to debt collectors who must provide a credit guide before collecting a debt if they are assignees otherwise the credit provider as principal must do this for its agent. (s 160(2)). Chapter 2, Part 2 3, Division 4 Liability of Licensees for Representatives ss , and ss. 324 and 325 of the NCCP).

14 Stopping debtor harassment Statute barred debt cannot be collected Collector behaviour must conform to debt collection guidelines (ASIC/ACCC) Agent/lawyer can act as barrier for distressing calls..

15 Debtor harassment Debt collectors will have to be licensed by their states or, if they purchase debt, will have to hold credit licenses and belong to EDR schemes. (NCCP, 6, 10 and see Regs)- note the transitional period. Assignees have to comply with the NCC (s 188) obligations as if they were the credit provider. (New!)ASIC RG 205 elaborates on the concept that a credit provider remains responsible for outsourced debt collection. Debtor harassment is a breach of section 12DJ of the ASIC Act, which prohibits the use of physical force or undue harassment or coercion in connection with the supply of, or payment for, a financial service. ASIC and the Australian Competition and Consumer Commission have jointly produced a guideline detailing the types of conduct that might constitute a breach of the law. The Debt collection guideline: for collectors and creditors, October 2005 ( the Guideline ) is available at: Also described as -ASIC RG 96 Debt Collection Guidelines for Collectors and Creditors In addition the general conduct obligations imposed on licensees under the NCCP require credit activities to be conducted honestly and fairly (s 47).

16 Debt recovery frustration Failure to identify hardship and provide a sustainable response Lengthy hardship applications that ask for inappropriate personal data Failure to obtain evidence to support a debt before demanding payment (debt collectors) Pursuing statute barred debts (debt collectors) Debtor harassment badgering, failure to acknowledge prior discussions Lying that creditor has a judgment when they haven t Unconscionable threats, jail, removing children, taking parents belongings etc Failure to wait until debtor has checked legal liability of alleged debt Making it difficult for an agent to assist a borrower Attempting to enforce overseas debts without Australian court orders

17 AND More annoyances: Illegally garnisheeing social security benefits Debt Collectors masquerading as law firms or fuzzy boundaries between professionals Instituting proceedings in a jurisdiction where the debtor does not live Selling up the family home undervalue by bailiff auction as a first enforcement remedy Assets being seized at great distance from auction increasing the sale expenses (cars, WA) Unsustainable instalment plans

18 Collector levers outside court pathway: Default listing with credit report PPSR? Credit repair Phone and phone and phone and phone.

19 Refer to financial counselling What do financial counsellors do? financial counsellor is a person who can assist you with a range of services relating to personal and business finances. These include information and options on: The rights and responsibilities of your finances Understanding debts and debt recovery processes Assistance with budgeting and money management Assist you to voice your circumstances to creditors and others Insolvency options

20 Consumer law and EDR An external dispute resolution (EDR) scheme is a free, independent dispute resolution service that can help if you have a complaint or dispute with one of the scheme s members (like a credit provider or broker). If EDR is available it is recommended it is used wherever appropriate. Relevant EDR schemes are: Financial Ombudsman Service (FOS): credit, insurance, financial planning and investment Consumer Ombudsman Service Limited (COSL): credit Telecommunications Industry Ombudsman (TIO): telecommunications issues Energy and Water Ombudsman Queensland (EWOQ): Water, energy. (EWON NSW, EWOV Victoria)

21 Lodging a dispute with financial ombudsman Halts legal proceedings (Terms of reference, FOS, COSL) Allows ombudsman to consider hardship variation

22 Framework: External dispute resolution ASIC Act Regulatory Guide 139 FOS Constitution-TOR-Circular (Bulletins) - Case Studies COSL Constitution-Rules-Guidelines-Case Studies Position Statement Codes of Practice Banking Code of Practice, Mortgage and Finance Association Code of Practice

23 Free dispute resolution for credit Financial Ombudsman Service Website: Decision making based on LAW: National Consumer Credit Protection Act and National Consumer Credit Code Common Law Unconscionable conduct - (11/3/02) Part 2 Div 2 ASIC Act (section 51AF TPA replaced) Good industry practice Industry Codes of Conduct Fair and reasonable in all the circumstances

24 In summary, debt primer basic understanding of poverty law Life of a debt statue bar, process of recovery Inalienability of Centrelink payments Enforcement 6 Bankruptcy: pros and cons (rent, passport, credit) What is judgment proof Cut off at the pass: instalment payments Stopping harassment Priority of bills and debts electricity!!!! Role of financial counsellors

25 Issues 1. No national approach on the endurance of a court judgment 2. No uniform quarantined fair go income protected from garnishee in any state 3. Homes at risk of undervalue sale at bailiff auctions in Vic and Qld 4. No debt threshold below which the family home cannot be sold as first step in Vic and Qld 5. Necessary household goods not protected from warrants in NSW 6. Judgement proof clients not protected from pointless harassment 7. Debtor initiated instalment plans have no universal rules to protect children at risk