Financial hardship arrangements

If you’re suffering from temporary financial hardship (such as an illness, unemployment or another reasonable cause), you have the right to request changes to your credit contract. This is referred to as a hardship variation.

This right has been around since July 1 2010, when all consumer credit providers became regulated by the National Consumer Credit Protection Act (NCCP). The NCCP says how lenders should deal with consumers, including financial hardship requirements.

What’s hardship?

This is when you don’t have enough money to cover living expenses. Financial hardship defined here, though, is involuntary and short-term. It might be caused by a decrease in income or an unexpected increase in expenses because you’ve lost your job, had your overtime cut or suffered a serious illness. It can also include large medical expenses and unexpected car or house repairs.

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:

  • interest-only payments,
  • extend your loan,
  • temporary stop on payments,
  • freeze on interest (although creditors are not obliged to provide this one).

The variation you ask for will depend on your circumstances. So if you lose your job, a temporary payment freeze might be best. But if you’ve permanently lost your overtime, perhaps you need to ask that your payments be reduced.

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 your credit contract started 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 (including credit cards and personal loans) are eligible.

How do I apply for a hardship arrangement?

Before you ask your lender or debt collector for hardship arrangements, 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’s affordable for you. It’s important you don’t promise something you can’t deliver.

If you have no income, determine how long it’s reasonable for you to find work again and get a pay cheque.

You can write or call to apply for hardship consideration. Follow these steps:

  • Specifically ask for the ‘hardship department’. You might need to insist. Then, during your communication, advise that your circumstances have changed and you can’t make the repayments.
  • Tell them what’s happened. Be honest. Tell them about your budget and exactly what you can afford to pay.
  • Once you reach an agreement, them to confirm it in writing. You should write down some details too, 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 and agreed to.
  • The lender must respond to your request in writing within 21 days. If they 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:

Financial Ombudsman Service
Credit Ombudsman Service

Call 1300 780 808.

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. This means your credit history won’t be damaged.

What are the disadvantages of hardship arrangements?

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

Hardship arrangements are not permanent and they’re subject to regular review. If your new financial situation is permanent, you should look at other options like informal arrangements, debt agreements, personal insolvency agreements or bankruptcy.

Find out more

A financial hardship arrangement is just one option in a range of debt solutions. For an overview on the range of options available, take a look here. You must determine whether the information is appropriate in terms of your particular circumstances.

And just by the way: New Leaf doesn’t provide financial hardship arrangements – but, as experts in helping people who are experiencing difficulty repaying their debts, we can talk you through them as an option.

Want to know more about financial hardship arrangements or other solutions? Talk to us, and we’ll take you through your options.


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