Instalment orders

Instalment orders

An instalment order allows you to pay off a court ordered debt in set amounts at set intervals. You can get separate instalment orders to pay off a number of debts.

These orders can help you, but the process can also be used to wear you down and increase costs if you cannot manage the payment. Get help if this is the case.

Debtors and creditors can both apply for instalment orders.

Debtor applications

If the court has ordered that you owe money to a creditor, and you have looked at your finances and decided that you can afford to repay a certain amount of money, applying for an instalment order may have some advantages for you.

Once the creditor gets the instalment order they must stop trying to get money from you until the court makes a final decision.

If a court grants your application for an instalment order, and you keep making the payments, the creditor cannot take any other action.

The creditor can apply for the order to be changed or cancelled if:

  • there is a substantial improvement in your ability to pay
  • it can be proved that you gave inaccurate information to the court.

Creditor applications

A creditor who has a judgment for a debt can also apply for an order forcing you to repay a debt by instalments. A creditor would be likely to do this because payment over time is better than no payment or irregular payment.

Make sure that you give the court enough information about what, if anything, you can afford to pay.

How to apply

You need to fill out two forms to apply for an instalment order. You can get the forms from the court that made the judgment. In most cases a financial counsellor or court registrar can help you with your application.

If the Magistrates' Court made the judgment, the first form is Form 61A – Application for instalment order. It asks you to:

  • show how much you can pay and how often. If you make an offer you cannot meet you could end up back in court
  • show that you are able to pay off the debt within a reasonable time. Ask the court what is reasonable
  • include any extra penalty interest charged on the debt from the date of judgment to the date the instalment order is granted. Check with the court how penalty interest is calculated.

The second form is Form 61B – Statement of financial affairs – individual, which asks details of your financial circumstances.

Lodge your papers with the court registrar. You must also send a copy of the papers to the creditor’s lawyer.

The registrar decides whether to accept or reject your application. You and the creditor will be told about the final decision.

If your application for an instalment order is rejected you have to wait three months before reapplying.

Payment of the instalments should begin on the date ordered.

Challenging the registrar’s decision

You or the creditor can object to the decision of the registrar. This must be done within 14 days of getting the notice of order.

The objection is then scheduled for hearing. You and your creditor are told of the hearing date.

This could involve more legal costs, so get advice quickly.

The objection hearing

The court may agree with, change or cancel the order. Take along information about your income, expenses and any other information that will help your case.

Centrelink and protected income

If your only income is Centrelink you cannot be forced to pay an instalment order. Your Centrelink income is protected income.

You can still apply for an instalment order if you think you can afford it. However, you must be able to prove that you can afford the payments and will be able to repay the debts within a reasonable time.

Remember, if you apply for an instalment order and your income is protected, you will lose that protection.

Change in circumstances

If your financial circumstances change, you or the creditor can go back to the court and change or cancel the original instalment order. If the creditor makes the application they must show that:

  • there is an improvement in your circumstances
  • the information on which the court based its order was wrong.

Failure to pay

If you do not pay, the creditor can have you ordered to go to court to answer questions about why you have missed payments.

The court, at this stage, can decide to confirm (keep), change or cancel the instalment order.

Can I go to jail for not paying a debt?

The court has the power to jail a person if:

  • the court has made an order that you owe the debt
    and
  • you have an instalment order in place
    and
  • you have the ability to pay
    and
  • you have failed to pay (‘defaulted’) the instalment order persistently (more than once) and wilfully (on purpose) and without reasonable excuse, or are intentionally evading payment.

Many creditors threaten jail, but it is unlikely that this will happen. The court will only order imprisonment in extreme circumstances. Do not agree to pay more than you can afford because of threats of jail. If you insist on an agreement that you can afford then you are more likely to be able to pay.

If a creditor threatens you, complain to the Australian Competition and Consumer Commission or Consumer Affairs Victoria – see Debt collection for information about how to make a complaint.

Costs

It costs you nothing to apply for an instalment order. If the creditor makes the application they will add their costs to your debt. Technically, you could pay penalty interest on the debt, but this interest is not added to the order.

For more information on penalty interest speak to a financial counsellor.

Get help

Find out how you can get help with debt and financial issues.