N.B: Beyond Debt does not organise Financial Hardship Arrangements. This section is provided for information purposes only.
If you’re suffering from temporary financial hardship (illness, unemployment or other reasonable cause), you have the right to request that your creditor changes your credit contract. This is referred to as a Hardship Variation. As of July 1st 2010, all creditors who are consumer credit providers are regulated by the NCCP (National Consumer Credit Protection Act), which lays out the requirements of how lenders should deal with consumers, including Financial Hardship requirements.
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 unforeseen increase in expenses. The reasons 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 any of the following changes to be made to your credit contract:
- A reduction to interest only payments;
- Extend the term of your loan;
- A temporary stop on payments; or
- 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 payments might be the best. If you lose your overtime, a reduction in payments might be the best option.
What is a Hardship Threshold?
If you entered into a credit contract on or after March 2013, you can apply for a hardship variation whatever the value of your loan.
If you entered into a credit contract between July 2010 and February 2013, you can apply for a hardship variation if you borrowed $500,000 or less.
Prior to this, there were indexed figures based on the ABS (Australian Bureau of Statistics) index of the cost of a new house in New South Wales, plus 10%.
Needless to say, most consumer debts (credit cards, personal loans) will be eligible.
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 to 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 paycheque.
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 that 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; and a summary of what was discussed.
- The lender must respond to your request in writing within 21 days. If they do reject your application, they must provide a reason.
If you think the reason they provided for rejecting your hardship application is unfair, you have the right to contact an external dispute resolution scheme:
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, or Bankruptcy.