Debt policy

Debt policy

Victoria Legal Aid's (VLA's) debt policy guides how VLA deals with assisted people who owe money to VLA.

The underlying principles of VLA’s debt policy are that:

  • VLA will treat its clients fairly and equitably
  • VLA will comply with its obligations under the Legal Aid Act 1978 to obtain financial contributions from assisted people
  • VLA will avoid overstating its secured debt in its accounts.

VLA’s debt policy covers:

  • secured debts
  • unsecured debts
  • initial contributions and other property
  • hardship or special or exceptional circumstances.

The details of these four categories are discussed below.

1. Secured debts

Security for debts above $1700

1.1 VLA will require an equitable charge over a home owned or partly owned by an assisted person if the cost of a grant of legal assistance will, or is likely to, be more than $1700. That amount may relate to:

  • one grant of legal assistance
  • several grants of assistance for the same person which are current at the same time
  • the total of all grants of assistance (including the current grant) to that person by VLA over the previous three years.

Limit on amount shown as secured debt

1.2 The amount shown as a secured debt in VLA’s accounts from time to time will be approximately equal to the lesser of:

  • the cost of the grant or grants of legal assistance
  • 120 per cent of the value of the assisted person’s equity in their home.

The figure of 120 per cent allows for inflation in the value of the home.

Amounts above limit shown as unsecured

1.3 If an assisted person owes VLA an amount for the costs of a grant of legal assistance which is more than the value of VLA’s security over their home, then VLA will record the difference in the amounts as an unsecured debt. However, this record will be in a separate category from the unsecured debts in Part 2 of this debt policy.

Once each year, VLA will review the unsecured part of a debt owed by an assisted person who has given VLA an equitable charge over their home. See further at 1.6 of this debt policy.

Calculating value of home and value of person’s equity in their home

1.4 VLA will calculate the value of an assisted person’s home and the value of the assisted person’s equity in the home from:

  • the information contained in the current mortgage statement which the assisted person gives VLA when VLA grants assistance and when the assisted person gives VLA later financial statements
  • the information contained in the assisted person’s financial statement
  • a search at Land Victoria to find any previous charges or securities (for grants of assistance if the costs are likely to be more than $1700)
  • a kerbside valuation by an appropriate estate agent (for grants of assistance if the costs are expected to be more than $5000).

Yearly review by VLA

1.5 Once a year, after VLA has assessed the amount of final contribution payable by an assisted person, VLA will review:

  • the secured debt
  • any associated unsecured debt
  • the value of the assisted person’s equity
  • the assisted person’s financial position.

For this review, VLA will require an updated financial statement from the assisted person. VLA may also again make the types of enquiry listed in 1.4 of this debt policy.

If the assisted person does not give updated financial information to VLA, then VLA may review and enforce the debt if VLA considers all the circumstances justify doing this.

VLA’s decision after yearly review

1.6 After VLA has done its annual review, VLA will decide whether to:

  • carry the debt forward
  • try to enforce the debt and the security and recover the amount the assisted person owes VLA
  • write off the debt.

2. Unsecured debts

Method and timing of payment to VLA

2.1 Unless VLA defers payment because of hardship to the assisted person or exceptional circumstances, an assisted person must pay all unsecured debts either:

  • in full
  • on an instalment repayment program.

In either case, the assisted person must repay or must begin to repay the debts:

  • within three months after VLA has assessed a final contribution
    or
  • within three months after the instalment falls due.

These unsecured debts include instalments of contributions, but exclude the debts referred to in 1.3 of this debt policy.

VLA’s action for non-payment

2.2 If the assisted person does not repay their unsecured debts in full or does not begin to repay instalments within the three months referred to in 2.1 of this debt policy, then VLA will do one or more of the following:

  • refer the debt to VLA’s debt collectors
  • list the person as a defaulter with the Credit Reference Association of Australia
  • negotiate another acceptable payment arrangements with the person.

For a debt less than $1700, an example of ‘another acceptable arrangement’ is for VLA to take an equitable charge over the assisted person’s home. This would then mean the debt would be treated as a secured debt under Part 1 of this debt policy.

Write-off, in some cases

2.3 If VLA refers a debt to its debt collectors or lists the person as a defaulter with the Credit Reference Association of Australia, then VLA will write off the debt.

Yearly review by VLA

2.4 Once a year, VLA will review all unsecured debts. Then VLA will decide whether to:

  • carry the debt forward
  • try to enforce the debt and recover the amount owed
  • write off the debt.

Six-year limit

2.5 If an unsecured debt is still listed on VLA’s subsidiary ledger after six years, then VLA will write off the debt.

3. Initial contributions and other property

This debt policy does not affect VLA’s requirement:

  • that an assisted person pay an initial contribution if appropriate
    or
  • for a charge over real property which is not the assisted person’s home.

4. Hardship or special or exceptional circumstances

If there is hardship or there are special or exceptional circumstances which justify special consideration, then VLA may modify how it applies this debt policy.

Examples of hardship or special or exceptional circumstances include:

  • If an assisted person who is involved in a family law matter is raising children – that person should be entitled to keep their interest in their home until the children are adults.
  • If an assisted person is in prison and their family is living in their home – that person should be able to maintain the home for their family’s welfare, at least until the end of their prison sentence.