The number of ‘attachment orders’ on benefits has grown dramatically in recent years, locking some of the poorest New Zealanders into ever deeper cycles of debt. Joseph Nunweek writes.

When Sharon* first heard the knock at her door and saw the men standing outside, she assumed it was something to do with her ex. Before Ross had shot through, he’d taken a pretty average stab at setting up and running his own trucking company, and she knew there’d been issues with unpaid bills and invoices. She was ready with the usual spiel – no, he’s not here any more. No, she doesn’t know his address right now.

Instead, the men, from a debt collector acting on behalf of a finance company, were at her West Auckland unit and asking for her by name. They were holding out a copy of the $20,000 loan agreement Ross had taken out in establishment costs for the business. And there at the bottom was her signature as well.

“I’d agreed to be the guarantor, then later I found out he’d never paid for it.” Sharon remembered signing the contract, but says she didn’t have independent financial or legal advice at the time. “I didn’t really know what a guarantor was or what was expected of me. I do now, but back then I didn’t give it a second thought.”

Ross had told the collectors he couldn’t afford to pay for it and basically had nothing to service the debt – at that time, Sharon recalls, he hadn’t even applied for a benefit. “But I was on the Supported Living Payment.”

Days later, Sharon received paperwork telling her the finance company was taking her to the District Court to obtain an attachment order against her WINZ benefit. The proceeding, which she attended, only took minutes. It ended in an order that Work and Income had to process deducting $20 a week from her benefit.

The amount was a big chunk out of a small payment. Sharon was also paying off fines, which, she told The Spinoff, had been incurred in her name by another driver. She had rent, petrol, groceries, utilities, and medication. Today, she’s still eking away to service a debt that will take decades to clear at its current rate.

“Some days, there’s only a couple of dollars left in my account. I have to put stuff off, I have nothing for the unexpected.” As it stands, a debt Sharon never initiated or meant to tie herself to will be weighing on her in 10 years’ time. She’s by no means alone.

Attachments on earnings (waged, where you may have a high enough income to address a debt with time; unwaged, where you almost certainly won’t) have been a staple of civil debt enforcement for decades. In that time, a lot has changed. There were the benefit cuts of the early 1990s; a rising cost of housing and living costs in the past decade that’s outpaced average household income; the proliferation of deceptively easy credit products that became available to consumers (including poor consumers) after the 1980s.

But the last five years saw an explosion in the number of attachment orders being made on benefits, seemingly coinciding with changes the government made to the system in April 2014. The process of obtaining an attachment order was simplified. A creditor could apply for an attachment order without first having to get a separate assessment of the debtor’s financial means. Service was streamlined, and orders could also be agreed to by consent at Disputes and Tenancy Tribunal hearings.

A Commerce Commission Issues Report from 2015 noted with surprise that, in under a year, attachment orders had gone from being granted at a rate of 200 per month to a rate of 1,000 per month. Initial figures provided to The Spinoff by the Ministry of Justice for 2018 indicated that 24,479 attachment orders for a civil debt were issued against beneficiaries in the space of that year. The number taken out against employed debtors (who are likely to have more means to service a debt) was only 5,527.

The MoJ is aware of the rapid increase, and say they have introduced control measures since 2015 to ensure creditors are not claiming excessive interest or costs as part of a judgment that they rely on in seeking an attachment order by referring such files directly to a District Court Judge. But even without unlawful extra debt being tagged on the top, beneficiaries may still be paying off five-figure bills.

On the ground, the repercussions are massive. As  Auckland Action Against Poverty advocate Kathleen Paraha says, “I think almost everyone who comes through our door – everyone I know – has an attachment order they’re paying off.” She points out that the MoJ  figures from 2018  are only for new orders made that year, not ongoing ones where people are still servicing major debts. “No one’s paying these off in a year. They’re on them in a lot of cases for the rest of their lives.”

The common characteristics of who is affected, and how, are sobering. Ben Hoffman, a Waikato-based beneficiary advocate who estimates that he’s seen hundreds of clients with attachment orders, observes that those paying these debts are more likely to be women. “They’re on a sole parent benefit and need the money for a car, clothing  for their kids. They have poor financial literacy and have not had good experiences with Work  & Income so it’s easier to just go to an unscrupulous creditor and get fast money they can’t repay. Then they just get shafted.”

Paraha believes that many of these come around as a matter of sexually-transmitted debt and economic abuse. “They’re the ones getting a benefit because of parental and carer responsibilities. There can be naivety around a partner’s debts at the time – letting them talk you into taking debts on, going in on agreements with them.”

Some creditors, it seems, are brutally aware of this arithmetic of who they can get to pay what. For example, an article on the New Zealand Property Investors Foundation’s site about obtaining attachment orders offers this prudent advice on the end of a co-tenancy: “I find going for the women is best because they are more likely to be beneficiaries.”

While some of these debts start as appropriate arrangements that end up derailed by a life-changing circumstance, others probably shouldn’t have been incurred in the first place. At best, Hoffman cites “high interest lenders to people who have an inability to meet immediate financial needs or obtain credit elsewhere. They lend when they shouldn’t.”

Hoffman told The Spinoff about a case involving a South Auckland client with limited English. The finance company spoke to him in his own language before he signed a divergent contract in English. Or another example where someone with an acquired brain injury entered into a finance contract which he had not properly understood. “These are the worst ones – where someone is completely vulnerable and being shafted.”

The end result, advocates agree, perpetuates a cycle of yet more debt. Paraha says “It basically becomes a debt trap. What you have are people who can’t afford their WOF or rent and are winding up with hundreds of dollars less a year that would cover it, and then they’re getting an advance loan from WINZ of their benefit, and then they’re in an even worse place.”

Hoffman concurs. “Food and power suffer; food usually because  it’s the most disposable. People will eat less or skip meals .In some ways, it makes it even worse since their credit is ruined, so good luck trying to get a private rental house or some kinds of jobs while getting by on $20 to $40 less a week.”

Though civil attachment orders on Aotearoa’s beneficiaries are a symptom and not a cause, it’s worth asking why, from a public policy perspective, we’re enabling a system where loans are made irresponsibly in the knowledge that something can be slowly clawed back at public cost (out of a WINZ benefit), and where people who are already underwater financially are given another push under the waves.

While New Zealanders can access the No Asset Procedure on debts between $1,000 and $47,000, insolvency is an intrusive and blunt instrument, with long-lasting implications even after the year it usually lasts.

You don’t have to look far to find an alternative – Victoria’s civil debt enforcement system, which is broadly similar to ours, changed its laws in 1984 to state that instalments can’t taken out of a person’s income if that income is solely derived from a benefit – at least, not without that person’s consent. The phrase usually used for it is being “judgment proof”.

People who want or need to honour a debt by way of court-confirmed instalments still can. But people who have choose between getting their kids to school and paying off a finance company on the balance owed from something that’s already been repossessed can choose the former.

Victoria’s society has been transformed by some of the same issues that face ours in the intervening 35-years. The cost of rent and transport has gone up while the level of federal income support remains the second lowest in the OECD. There are more ways for people to access high-risk and high-interest finance than before. Yet the protection of social security income prevails, making a small, crucial difference even as beneficiaries and their allies continue to demand a fairer deal.

The Spinoff sought comment from the minister of justice, Andrew Little, about the likelihood that Work & Income recipients could gain similar protections here. He was clear that the government had no plans to introduce exemptions for beneficiaries in the current enforcement process, instead identifying that beneficiaries may return to the District Court to vary, suspend or cancel an attachment order without a filing fee.

A subsequent Official Information Act Request to the Ministry showed that the take-up of this attempt to ease the strain of debt repayment was almost negligible  compared to the number of orders being made. In the year 2018, only 432 debtor applications total, waged and unwaged, were made. Only 51% of those were successful. 151 led to some variation of terms of deduction, and only 42 led to cancellation or suspension of the order.

Paraha and AAAP’s insight into these low numbers, and low success rate, is that “the process is not streamlined and can be dehumanising. People are expected to go through a means assessment which means every expenditure of the person given the attachment order is scrutinised and the Court ultimately has discretion on how much to reduce it by.” She says her organisation is disappointed that a law change, or other directives to the Court on placing beneficiaries under attachment orders, aren’t on the drawing board. “The extra bureaucracy takes time and resources from both the Court and the individual affected. It could be completely scrapped if people who could not afford to make the payments weren’t put on the orders in the first place.”

There’s no doubt that being unable to recover debts gone sour from a WINZ benefit would change some business practices. And perhaps it should. In the case of credit companies, individuals have been lent money in circumstances where anyone diligent would have seen it could never get paid back on the contract terms, and ultimately, the New Zealand government is paying the balance through benefits that were intended to help keep needy people fed and housed and well.

In the private rental sector, it beggars belief in 2019 that any serious operator is choosing not to take out landlord insurance. And in Victoria, larger  financial institutions like banks and insurers have been able to direct their cost recovery more effectively, rather than spend more money than they get back.

Ultimately, changes that meant civil attachment orders couldn’t be made on benefits would hardly be a revolution in this context, but it would be a minor reform that gives individuals and reforms to breathe. “We think [MSD attachment orders] are another part of the war on the poor.” Paraha tells me. “It should be done away with.”

* Names have been changed.