What can I do if I can't pay my loan?

This will depend on the type of contract you have, whether the debt is secured (there is a mortgage over a car or house for example) or unsecured (no mortgage), the reason you cannot pay. The quicker you act the easier it is to come to an arrangement with the lender.

If court proceedings have started you need urgent legal advice. See Getting Help below.

What can I do if I know I can't pay and/or I have received a "default notice"?

As soon as you receive a default notice threatening legal or enforcement proceedings you should take action. Do not ignore any default notice.

Some options to consider:

• Pay the amount you owe
• Negotiate a one-off variation in repayments
• Negotiate a permanent change to repayments
• Make a hardship variation
• Apply for mortgage assistance
• Negotiate a postponement of enforcement
• Refinance the loan
• Sell goods to repay loan
• Voluntary surrender of mortgaged goods
• Bankruptcy

GET HELP - GET LEGAL ADVICE

1. If you can, pay the amount owing: (and any other amount owing that may have become due after the notice was sent)on the default notice before the end of the time period set out in the default notice. If you do this, the lender cannot proceed with the repossession of any mortgaged property that is securing the loan, such as your house or car.

2. Negotiate a variation in repayments: A financial counsellor can assist you with this. See Getting Help below. If the lender agrees to postpone or vary repayments for a period of time, send a letter to the lender confirming this change. Use the sample letter below.

SAMPLE LETTER:

[Write Date here]

Dear [write lender's name],

Loan Account No:

I refer to the telephone conversation with [person's name] of your office on / / [write date here] .

In that telephone conversation you agreed that if I paid $200 immediately and $300 on / /[write date here] in addition to my usual repayment, you would cease all enforcement action.

I have deposited the agreed repayment today.

Yours faithfully,

[write Your name here]

Important:

• always date your letters
• always keep a copy of any letter you send
• GET LEGAL ADVICE IF YOU ARE UNSURE

3. Negotiate a permanent change in repayments with your lender: If you are not going to be able to make your repayments for a long time you may be able to negotiate a permanent change in repayments with your lender. If the lender agrees to this, you need to confirm the changes in writing. Check that you will still repay the loan within a reasonable time. A sample letter you could send appears below.

SAMPLE LETTER:

[write date here]

Dear [write lender's name here],

Loan Account No:

I refer to the telephone conversation with [person's name] of your office on / / [write date here] .

As discussed, I confirm that my financial circumstances have changed because [write the reason/s you can't make repayments here].

In that telephone conversation you agreed that since my circumstances have now changed for the foreseeable future my repayment could be reduced to $ X per week/fortnight/month.

Yours faithfully,

[write Your name here]

4. Make a Hardship Variation: If your loan was for personal rather than business purposes and it was for less than $340,670 (as at 18/11/04) you may be entitled to apply for a hardship variation even if the lender does not want to negotiate — for more information see Fact Sheet: Hardship Variations on Consumer Loans .

Please note that the above threshold is linked to the current cost of new homes in Australia and changes monthly. The current threshold is available from the the "What's New" section of the The Consumer Credit Code website at www.creditcode.gov.au

5. Negotiate a postponement of enforcement: Again, if your loan was for personal rather than business purposes and it was for less than $340,670 (as at 18/11/04) you may be able to apply for a postponement of enforcement to stop the repossession and sale of goods for example. Your application must be made prior to the end of the 30 day period under a default notice and you must have a reasonable plan for meeting your commitments. A sample letter can be found at Sample Letter: Request for a Postponement of Enforcement . An application can be made to enforce the postponement. If the lender does not agree to a postponement, or does not respond to your letter, seek legal advice.

6. Apply for Mortgage Assistance: Details can be obtained by ringing 1800 806 653.

7. Refinance the loan: Just ensure you are getting a comparable or better deal on the new loan.

8. Sell your home/car/goods: (the security for the loan) and pay this amount against the contract.

Warning:

• To sell the mortgaged goods you will need to get the written consent of the lender, or the consent of the court.
• In the case of car/goods - the sale of the goods is very unlikely to cover the whole of the loan amount owed;
• Check if there are any fees for repaying early.
• Alternatively, you could sell other goods or property you own.

Note: If your loan is secured by a car/goods many people are tempted to hide the car/goods. Although popular, this is not a recommended option. The lender can require you to tell them where the car/goods are. If requested, this information must be given to the lender within 7 days. If the information is not provided you may be found guilty of an offence. That aside, you do not get to use the car while it is hidden! 

9. Voluntary surrender: You can give your home/car/goods to the lender and ask them to sell it. This is likely to achieve a lower price then if you sold your home/car/goods yourself.

10. Bankruptcy: This is an option of last resort with serious consequences.