7.3.6.50 Waiver of Debts - Settlement of Civil Actions

Settlement of civil action

If the Commonwealth has agreed to settle a civil action against a debtor for recovery of a debt for less than the full amount of the debt, Centrelink must waive the difference between the debt and the amount that is the subject of the settlement.

Settlement of proceedings before AAT

If Centrelink has agreed to settle proceedings before the AAT relating to recovery of a debt on the basis that the debtor will pay less than the full amount of the debt, then Centrelink must waive the right to recover the difference between the debt and the amount that is the subject of the settlement.

Waiver where at least 80% of debt is recovered & debtor cannot pay more

The Commonwealth must waive the remaining 20% or less of the value of the original debt if:

  • at least 80% of the original value of the debt has been recovered by the Commonwealth,
  • the Commonwealth and the debtor agree that the recovery is in full satisfaction for the whole of the debt, and
  • the debtor cannot repay a greater proportion of the debt.

Agreement for part payment in satisfaction of outstanding debt

Centrelink and the debtor may agree that the debt will be fully satisfied by part payment of the outstanding amount. If this occurs, the debtor pays an agreed amount less than the outstanding amount of the debt, and Centrelink waives the right to recover the difference between the agreed and outstanding amounts.

Limits on agreement to accept part payment in satisfaction of outstanding debt

Agreement for part payment in satisfaction of the outstanding debt can only be made if the agreed amount is at least the present value of the unpaid amount if it is repaid in instalments.

The present value of the unpaid amount is calculated as follows:

Step 1: Add 1 and interest.Step 2: Multiply the result of step 2 by itself repayment period times.Step 3: Divide 1 by the result of step 2.Step 4: Subtract the result of step 3 from 1.Step 5: Divide annual repayment by interest. Step 6: Multiply the result of step 4 by the result of step 5.

where:

  • annual repayment is the amount of the original debt Centrelink believes would otherwise be recovered through methods of debt recovery in a year,
  • rp (repayment period) is the number of years needed to repay the unpaid amount if repayments equal to the annual repayment were made each year, and
  • settlement interest is the annual rate of interest.

Act reference: PPLAct section 198 Waiver of debts-settlement of civil actions

Last reviewed: 6 February 2017