18.104.22.168 Write off of Debt
This topic discusses:
- what is write off,
- when a debt may be written off,
- capacity to repay,
- debts that are irrecoverable at law, and
- cost effectiveness issues.
What is write off
Write off stops recovery action either for a defined or an undefined period. At any time, the write off can be reversed and recovery proceedings begun where circumstances change. Unlike a waiver, write off does not extinguish the debt.
The terms 'suspension' and 'deferral' of a debt refer to write off.
Act reference: SSAct section 1236 Secretary may write off debt, section 1231(2A) Deductions from debtor's pension, benefit or allowance
Policy reference: SS Guide 22.214.171.124 Debt recovery by deductions
When a debt may be written off
A decision that recovery of all or part of a debt will not be pursued must be made by a delegate under one of the relevant provisions of the SSAct.
A social security debt may be written off only where:
- the debt is irrecoverable at law (see below), or
- the debtor has no capacity to repay the debt (see below), or
- all reasonable efforts have been made to locate the debtor, but their whereabouts remain unknown, or
- it is not cost effective for the Commonwealth to take action to recover the debt.
A decision to write off a debt takes effect from the day specified in the decision, or if no day is specified, the day on which the decision is made.
Act reference: SSAct section 1232(2) Legal proceedings, section 1232(4) to (6) Legal proceedings, section 1236 Secretary may write off debt, Schedule 1A clause 105 Application and savings provisions: debts due to the Commonwealth and their recovery
Capacity to repay
A debtor is taken to have capacity to repay unless recovery would result in the debtor being in severe financial hardship. The test for financial hardship is based on the debtor's individual circumstances.
Act reference: SSAct section 1236(1A) The Secretary may decide…, section 1236(1C) For the purposes of paragraph…
Debts that are irrecoverable at law
A debt can only be written off as irrecoverable at law in the following circumstances:
- there is insufficient proof of the debt for it to be recovered through legal proceedings, or
- the debtor is discharged from bankruptcy, and the debt was incurred before the debtor became bankrupt, and was not incurred by fraud, or
- the debtor has died leaving no estate or insufficient funds in the estate to repay the debt.
In these circumstances, the write off would be considered to be indefinite because it is a practical recognition of the inability to recover.
Note: As of 1 January 2017, actions to recover a social security debt can be commenced at any time. The former 6 year statute of limitations no longer applies.
Act reference: SSAct section 1236(1B) For the purposes of paragraph…
Policy reference: SS Guide 6.7.3.08 No Time Limit on Debt Recovery
Cost effectiveness issues
When determining whether pursuing recovery of a debt is cost effective, only administrative and legal costs associated with garnishee action or civil action should be considered, not costs already incurred.
In determining whether it is cost-effective to pursue recovery of small debts, a number of factors must be considered, including:
- the amount of the debt,
- the cost of any further investigation,
- the cost, in terms of staff resources, of calculating and recording the debt and advising the recipient,
- the prospect of recovery,
- whether the debtor is currently receiving a payment from Centrelink.