Over Christmas, Andrea Godwin’s fridge broke down. It was the worst timing for a working mother of two young boys, let alone someone who also relies on Centrelink to get by.

At times like these Godwin would usually request an advance on her parenting payment. But these days she is barred from accessing them. Centrelink claims she owes it money – an $8,500 robodebt.

“I don’t even like getting a debt for $100 or $200, to me it’s still quite a large amount,” Godwin, 32, tells Guardian Australia. “For a single mum on a casual earning job, it’s something that’s going to hang over me for such a long time.”

Andrea Godwin with her son Thomas, two. Photograph: Kelly Barnes/The Guardian

About four years ago, the government announced a new policy to bolster the budget bottom line and emphasise its tough posture on so-called welfare rorting. The system – which used tax office data to predict where a person may have underreported income to Centrelink and then forced them to prove they did not – quickly became known as robodebt.

Godwin has one of the more than 600,000 debts issued, which are worth about $1.6bn in total. And she may well have a second, worth about $10,000, after Centrelink began another debt “review” in October.

Since 2016, Centrelink has sent out more than 1m review letters warning people the information it holds from the tax office is “different to the information you reported to us”. The language of the letters has softened recently, but the effect is the same: show us proof that the income you reported to us was correct; and if you can’t, pay up.

I know people think, It’s only $20 or $30 bucks a fortnight, but that put petrol in my car Carolyn Pritchard

Despite a string of scandals, including an intellectually disabled man who was handed a $14,500 robodebt and the Melbourne woman who had her tax return seized while she was homeless, the scheme rolled on year after year with only minor “refinements”. Until Guardian Australia published leaked documents last year, the government appeared to be mulling an expansion.

Then in November, to the shock of many, the government backed down from the program. It killed off its central tenet in the shadow of a federal court legal challenge, which appeared to confirm in November what ardent critics had declared years earlier: the scheme was unlawful.

‘I just felt like giving up’

Now, the government is facing a class action against the scheme, launched by the law firm Gordon Legal, which calls for refunds and compensation. Guardian Australia this week revealed that the government will argue it does not owe welfare recipients a duty to take “due or reasonable care”, according to its interpretation of social security law.

Godwin, who lives north of Adelaide, is among the 10,000 people who have registered for the class action.

She “sank deep into depression” when she got her first debt. “I just felt like giving up,” Godwin says. “I do have a history of mental health, as well. I felt like, ‘If I can’t get ahead, what’s the point?’ I’ve spent many nights crying.”

Those who receive Centrelink payments have their fortnightly welfare benefits calculated according to how much income they receive from their employer. To prove she had not misreported her income, Godwin needed payslips from the place she worked five years ago. She couldn’t get them.

The best she could do was bank statements, which show net income, not the gross figure required under Centrelink’s reporting rules. The agency eventually told her she owed them about $8,500.

It was the same story for Carolyn Pritchard, who has received three debts so far, including an alleged Newstart overpayment worth about $1,000.

“I was in tears,” she tells Guardian Australia. “The first letter I thought, ‘Oh OK, maybe I did?’ But then when I got another one, I thought, ‘I can’t afford to keep paying back money I know I didn’t underestimate. I know people think, ‘It’s only $20 or $30 bucks a fortnight,’ but that put petrol in my car at the time.”

Pritchard, from Nowra on the NSW south coast, was employed casually as a homecare worker at the time Centrelink says she misreported her income. When it asked for payslips, she learned the company had been taken over. “They couldn’t find me in the system,” Pritchard says.

‘Strong-armed’ into compliance

Given the whole robodebt scheme is now in disarray, some caught in its net wish they had never complied with Centrelink. “In hindsight, I probably should have ignored the letters,” says Melbourne man Peter Eade.

He says the prospect of a “very large robodebt based on ridiculous whole-financial-year averaging” and government warnings that welfare debtors could barred from travelling overseas was “enough to strong-arm people like me into digging up old payslips”.

While some employers still had his payslips, the bars and cafes he had worked at did not. “So what they did here was suggest I gave them my bank statements for the period,” he says.

“I then read out deposit figures from workplaces and they had an equation to estimate a gross figure from whatever went into my bank. Of course I only did this out of the fear of an income-averaged debt.”

Last week, the government refused to provide any legal advice about the scheme to a Senate inquiry. However, documents tabled in parliament show that it was told by lawyers that the program was unlawful.

But the overall backdown has been welcome news for potential victims. Critics say Centrelink has finally abandoned a “reversal of the onus of proof”: in simple terms, taking a person’s annual income reported to the tax office, dividing it by 26 fortnights and using this figure to allege a person had misreported their income years earlier.

The government says it is calculating the number of debts affected, though it has been tightlipped about how this is being worked out. The government services minister, Stuart Robert, has refused to apologise for the scheme.

“We’ve been carefully and methodically working to identify those customers whose debts may have been calculated using apportioned ATO [data],” he told parliament.

Both Labor’s government services spokesman, Bill Shorten, and the Greens senator Rachel Siewert say people who were hit with debts have any payments refunded. The Welfare Rights Centre’s executive director, Katherine Boyle, says this should happen soon.

If they don’t have those payslips, then they don’t have the evidence. So that should just be refunded Katherine Boyle

“Given that it’s been clear since November last year that this robodebt program is unlawful, I would say that within the next three months we would want to see refunds commence,” she says.

As part of its backdown, the government announced that it would only pursue debts once it held “proof points”, but Boyle is worried the government may continue to use bank statements, which show net income. Centrelink recipients are told to report their gross fortnightly income.

Boyle acknowledges there will be debts that are correct and says these should be enforced. “If they’ve already got evidence, they might have a few payslips here and there, then the government’s entitled to keep whatever money was raised based on that evidence,” she says.

“But if they don’t have those payslips, then they don’t have the evidence. So that should just be refunded.”

‘I’m only a tiny person in this world’

Data provided to parliament gives some sense of how incorrect the debts can be. In the 12 months to August, 14.2m worth of debts were later “amended” – 44 debts were reduced by more than $10,000 and a further 173 by between $5,000 and $10,000. More than 1,000 were wrong by between $1,000 and $2,500.

Put another way, more than 100,000 debts – or about 20% of all debts issued – have been waived or reduced since the scheme began.

For people on low incomes, these are sizeable sums. The average debt is $2,630.

Pritchard has paid back all three of hers now and says it wasn’t easy.

“I was on my own, and then you’re trying to make ends meet, pay a home loan,” she says. “Both my children are special needs, which made it harder to get therapies because this is pre-NDIS. I couldn’t afford things. We didn’t go anywhere.”

Godwin is still on her payment plan and has had about $800 taken out of her parenting payment by Centrelink in $30 fortnightly instalments. Now, she is worried about the prospect of a new debt. In October, she received a new letter asking her to provide evidence of her past income.

She has been unable to track down payslips for one of the three employers she had in 2016. “They only held payslips for 18 months,” Godwin says.

Despite claims from Centrelink that they will help recipients gather payslips, Godwin says no assistance was offered.

Before robodebt, Centrelink would use its legislated powers to gather income evidence while investigating a potential overpayment. Abandoning that commitment and placing the onus of proof on welfare recipients allowed the government to predict it could save billions.

Over the phone, a Centrelink employee told Godwin her new debt was likely to be about $10,000. She is now waiting to hear more from Centrelink. And from the government. And about the class action.

“It would be great to have it wiped and the money refunded,” she says, “but I’m not holding my breath.”

“Centrelink is such a big organisation, they’ve got more power to fight to try and get the money from people. Whereas I’m just one tiny person in this world.”