What can I do if I can't make my loan repayments?

As soon as you know that you will not be able pay any or all of your loan repayment(s) you should decide whether the reason you cannot make the repayments is a long-term or temporary problem.

What can I do if I'm having temporary difficulties in making repayments?

If your difficulty in making your loan repayments is temporary then you may be able to change your repayments on the grounds of hardship under section 66 of the Consumer Credit Code 1996.

To be eligible:

• The Consumer Credit Code must apply to your loan. Examples of loans that the Code would usually apply to are those for personal rather than business use such as: car loans, personal loans, home loans, and consumer leases (contract signed on or after 1/11/96) and credit cards (in use after 1/11/96). If you are unsure about this get advice.
• You must be unable to pay because of illness, unemployment or other "reasonable cause".
• You must show that if the variation is granted you will be able to repay your loan within a reasonable time.
• A hardship variation can be made at any time but preferably before court proceedings have commenced. If court proceedings have commenced you may still be able to take one of the steps below but you should also get urgent legal advice.
• Your loan (or credit limit) must have been for less than $364,100 (as at 10/12/09). Please note that this threshold is linked to the current cost of new houses in Australia and changes monthly. The current threshold is available from the "What's New" section of the Consumer Credit Code website at www.creditcode.gov.au
  

You can apply for a hardship variation at anytime up until a court judgement is given against you.

If you are eligible, then there are 3 possible variations that you can request. They are:

1. Reduce your repayments for a period of time (and extend the term of your loan)
2. Postpone repayments due on a specific date. This would apply when you know that for a period of time you will need to make each of your repayments a few weeks later than the date they are usually due.
3. Cease making repayments for a period of time (for example, 6 months) (and extend the term of your loan).

Important: If possible, you should apply for a Hardship Variation before court action is taken. If court action has started get legal advice immediately as you need to file urgent documents in the court!

What do I do next?

You write to the lender straight away requesting one of the above changes to your repayment arrangements. If your loan is a joint loan then if possible all parties to the loan should make the request. If this is not possible, you should still make the request yourself. A sample letter for this purpose is available at Sample Letter: Request for Hardship Variation. Keep a copy of the letter you send.

When completing the letter, you should consider the following:

1. The lender is more likely to accept your request if it is reasonable. Try to strike a balance between what you can afford and trying to at least meet some of the loan commitments during the period of hardship.
2. The lender wants as much relevant information as possible to consider the application.

This means giving details of:

• The reasonable cause for hardship, for example, doctor's certificates for an illness.
• Your current income and other major financial expenses, for example, other loans.
• How you will repay the loan and in what period of time.

There is no requirement that you give any other information that is not relevant to the application.

Even if the lender is demanding unrealistic repayments, it is in your interest to keep making some repayments to the loan. You should continue to pay whatever you can afford during negotiations.

What if the lender says "No" or does not respond?
 

If court proceedings have NOT commenced then you still have the option of applying to enforce the variation. You have two options:

Option 1:

If the lender is in an external dispute resolution scheme [for example, the Financial Ombudsman Service ("FOS")] you can raise a dispute with the external dispute resolution scheme if you believe the lender’s response is inadequate. For more information on external dispute resolution schemes see Fact Sheet: Have a dispute you can't resolve with your credit provider? Not all lenders are in an external dispute resolution scheme. You can find out if yours is a member by ringing 1300 78 08 08.

The lender cannot commence court proceedings against you once you have lodged a written dispute with an external dispute resolution scheme until the dispute is determined.

Option 2:

You can make an application to the Commercial Division of the Consumer, Trader & Tenancy Tribunal (“the Tribunal”) asking for an order that the lender agree to the variation you have asked for. A guide on how to do this is available at Fact Sheet: Guide: How to Apply for a Hardship Variation in the Consumer Trader and Tenancy Tribunal. Again, the Tribunal is only likely to grant the orders you request if you can demonstrate that your loan will still be likely to be paid back within a reasonable time.

Note: You can appear at the Tribunal unrepresented (without a legal representative).

If court proceedings have commence (you have received a Statement of Claim). You have 3 options:

Option 1:

You can complain to your lender's dispute resolution scheme if they are a member [for example, the Financial Ombudsman Service ("FOS")]. For more information on external dispute resolution schemes see Fact Sheet: Have a dispute you can't resolve with your credit provider? Not all lenders are in an external dispute resolution scheme. You can find out if your lender is a member by ringing 1300 78 08 08.

The scheme may accept the dispute any time up until judgment has been entered by the Court (as long a you have not filed a defence). If you have filed a defence you may still be able to go to the external dispute resolution scheme but you must seek urgent legal advice about the court proceedings. If judgment has been entered (including a default judgment that you may not be aware of), then the external dispute resolution scheme will not be able to assist you. If the external dispute resolution scheme cannot resolve your dispute, decides against you or you do not accept its decision, the lender can resume its legal proceedings against you.

Do not assume that your dispute has been accepted by the external dispute resolution scheme. You need to contact the dispute resolution scheme and ask them to confirm the following:

1. Your dispute has been recorded and registered

2. The dispute resolution scheme has notified your lender that you have filed a dispute

3. The dispute resolution scheme has confirmed that the lender has agreed not to proceed to judgment while the dispute is in the dispute resolution scheme.

Option 2: 

You can still make an application to the Commercial Division of the Consumer, Trader & Tenancy Tribunal ("the Tribunal") asking for an order that the lender agree to the variation you have asked for. A guide on how to do this is available at Fact Sheet: Guide: How to Apply for a Hardship Variation in the Consumer Trader and Tenancy Tribunal. Again, the Tribunal is only likely to grant the orders you request if you can demonstarte that your loan will still be likely to be paid back within a reasonable time. However, if proceedings have been commenced against you in another jurisdiction, such as the Local Court or Supreme Court, you should also get legal advice.

Option 3:

You may be able to use hardship as a defence and cross claim in response to the court proceedings against you. You have 28 days from the date you are served with the Statement of Claim (the court proceedings) to apply for hardship as a defence and cross claim to the court proceedings. You need to get legal advice about this option.

Alternatively, you can ask your lender to stay the proceedings while they consider your application for a Hardship Variation. You need the lender's agreement in writing that it will not proceed to judgement during this time. You should still get legal advice about the court proceedings.

Note: If you have received a Statement of Claim and you believe you qualify for a Hardship Variation, but you have never written to the lender asking for a Hardship Variation, then you should send a letter requesting a hardship variation immediately. (See Sample Letter: Request for Hardship Variation). You should refer to the Statement of Claim and ask the lender to respond urgently. If the lender refuses, or does not respond, you can follow one of the steps above. If your lender is a member of an external dispute resolution scheme, you should lodge an urgent complaint with the scheme immediately (even before you send the letter requesting hardship, or at the same time).

What if I am not eligible for a hardship variation under the Consumer Credit Code?

If your lender is bound by the Code of Banking Practice or a member of the Mortgage & Finance Association of Australia then those lenders have obligations to work with you if you are in financial hardship. These obligations may cover your loan even if your original loan was larger than the hardship threshold, or you are a small business or investment borrower. You can use a breach of those obligations as a reason to complain to an external dispute resolution scheme. 

You should still contact the lender and explain your situation. Ask for a reduction (or postponement) in your repayments for period of time. If the lender agrees, confirm the agreement in writing. Keep a copy of the letter. If the lender will not agree, you should keep making some of your repayments (if you can) and get advice from a financial counsellor and/or make a claim to an external dispute resolution scheme if your lender is a member.

If the lender will not agree to a change in repayments, other options need to be considered. See Fact Sheet: Can't Pay Your Loan? If court proceedings are commenced, you must get legal advice immediately.

If your financial difficulties are likely to be long term, it is recommended you get a financial counsellor to assist you.

Can I request a reduction in the interest rate?

You may request a reduction in the interest rate, or even a “freeze” on all interest, but the lender has no obligation to agree. This is not one of the changes covered by the Hardship Variation right created under the Consumer Credit Code, so you cannot ask the Tribunal for an order agreeing to a reduction in interest. Despite this, lenders sometimes agree to reduce or freeze interest on loan accounts (for a short time or until the loan is repaid), especially if you have compelling compassionate grounds for your request. If your lender is covered by one of the industry Codes of Practice mentioned in the previous section, there is no limit apart from reasonableness on the type of variation you can ask for. As with any other request for a repayment arrangement, you should put your request in writing and provide as much evidence as possible of your financial circumstances and your illness, disability or other good reason.

Postponement of Enforcement

In some circumstances you may need some time to meet your commitments although you are not entitled to a hardship variation (for example you may have a permanently disabling illness, or be simply struggling financially). In such circumstances it is possible to apply to the Consumer Trader and Tenancy Tribunal for a postponement of enforcement to stop the repossession and sale of goods or the commencement of court proceedings. A likely scenario might be that you want time to try to sell a mortgaged vehicle privately, or are expecting a compensation pay-out or tax return in the near future.

The same eligibility criteria apply as for a Hardship Variation (that is the loan must be covered by the Consumer Credit Code and the total amount of the loan must not have exceeded $364,100*, (current as at 10/12/09) and you must first try to negotiate a postponement directly with the lender. As with Hardship Variations, the key is having a reasonable plan to meet your commitments. Long or indefinite delays are unlikely to be accepted by the lender or the Consumer Trader and Tenancy Tribunal.

An application must usually be made before the end of the 30 day period under a default notice or acceleration notice. Although postponements are granted after the default notice has lapsed. See sample letter, Request for a Postponement of Enforcement . If the lender refuses to grant the postponement or does not respond seek legal advice.

* Current as at 10/12/09. For the latest figures please visit the "What's New" section of the Consumer Credit Code website at www.creditcode.gov.au