If you’re suffering from temporary financial hardship (such as an illness, unemployment or another reasonable cause), you have the right to request your creditor changes 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.
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.
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:
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.
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.
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:
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:
Call 1300 780 808.
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.
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.
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 talk about financial hardship arrangements or other solutions? Talk to us, and we’ll talk you through your options.