Financial Hardship Arrangements

If you’re suffering from temporary financial hardship you can request that your creditor changes your loan contract. All Lenders and Debt Collectors have signed up to the UCCC (Uniform Consumer Credit Code) which requires that special conditions are made available for those in financial hardship. The UCCC applies to finance provided to individuals not finance provided for business or investment purposes.

What is Hardship?

Financial hardship refers generally to not having enough money to cover living expenses. The important point about hardship is that it is involuntary and short term in nature. The financial hardship may be caused by either a decrease in income or unforseen increase in expenses. The reason for hardship might include: losing your job, a reduction in overtime, not being able to work due to medical reasons, large medical expenses and unexpected car or house repair expenses.

What are Hardship Provisions?

If you’re experiencing hardship you can contact your creditors and ask for the following changes to be made to your loan contract:

  • A reduction in your repayment to a level you can afford
  • A temporary stop on payments
  • A freeze on interest (however creditors are not obliged to provide this)

What variation you ask for will depend on your circumstances. If you lose your job, a temporary freeze on payment might be the best. If you lose your overtime, a reduction in payments might be the best option.

How do I apply for a Hardship Arrangement?

Before you ask your lender or debt collector for hardship, you should work out how much you can afford to pay based on your CURRENT circumstances. Sit down and do a budget and work out what an affordable repayment is. It is important that you don’t promise something that you can’t deliver.

If you have no income, determine how long is reasonable for you to find work again and get a pay check.

If you want to apply for hardship you can do so in writing or over the phone. If you do so over the phone, request that everything you agree to is confirmed in writing.

  • Call your lender or debt collector and advise them that your circumstances have changed and you can’t make the repayments. You might want to specifically ask for the “hardship department”. You might need to be insistent about this.
  • Tell them what’s happened – be as honest as possible. Tell them about your budget and tell them exactly what you can afford to pay.
  • Once you reach an agreement, ask that it’s confirmed in writing. It’s important to write down some details as well, including
    • The company you’re talking to,
    • The time and date of the call,
    • The name of the person you’re talking to
    • A summary of what was discussed

What are the benefits of Hardship Arrangements?

The main benefit is it will give you short term relief from your debts. Because you’ve approached your creditors, you haven’t breached your contract and you will generally not be defaulted, so your credit history will not be damaged.

What are the disadvantages of Hardship Arrangements?

You will have to pay your debts back in the end. If your creditors don’t freeze the interest, this will extend the term of your agreement and you may end up repaying more.

Hardship Arrangements are not permanent either. They are subject to review at regular intervals. If your new financial situation is permanent you should look at other options like informal arrangements, debt agreements, personal insolvency agreements and bankruptcy.

In each state you can also complain to these organisations