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If your lender has sent you letters saying your payments are overdue and asks you to bring them up to date, you need to respond as soon as possible before they start legal action. Read this guide, decide what course of action you will take and then contact your lender to let them know what’s happening.
If they don’t hear from you, they could take enforcement action against you.
If they have already started legal action, like sending repossession notices, talk to a solicitor immediately to find out your options. Even if they have repossessed some of your things, there might still be a chance for you to get them back and ask for the loan terms to be varied.
Ask yourself these questions:
1. Do I owe the money?
If the answer is yes, read the section called "Your options" on the what can I do if my payments are overdue? page. If you don’t owe the money, you have the right under the Consumer Credit Code to dispute the money owing. You can do this by writing to the lender and explaining why you believe the amount they say you owe is wrong. If the lender agrees with you they will send you a revised account showing the agreed amount of money you owe. If they do not agree with you, the lender must write back to you explaining why they believe you owe them this amount of money.
2. Was the credit contract unjust?
If the Consumer Credit Code applies to your loan, you might be able to change the contract if you can show it was ‘unjust’. If you think your loan is unjust, get legal advice about the contract. Some of the reasons a contract could be found to be unjust include:
- It imposes unfair terms and conditions on you.
- It was difficult to read and understand.
- It was not properly explained to you.
- It includes excessive interest or fees when compared to other similar loans.
The contract might also be found to be unjust if the lender used unfair tactics or put pressure on you to sign it, knew (or should have known) you could not repay the loan without substantial hardship, or failed to take into account your age, literacy levels and mental or physical capacity to enter into a contract.
Your options
If you agree you owe the money but you’re struggling to pay it back, consider these options:
1. Bring your payments up to date
The simplest way to prevent the lender taking further action is to bring the payments up to date as soon as possible. Consider whether you could sell any unsecured assets to raise the money needed to bring your payments up to date.
2. Ask to change the terms of your loan
Section 66 of the Consumer Credit Code allows borrowers to apply to vary their loan on the grounds of hardship. The How do I change the terms of my loan? section of this guide give detailed instructions about how to apply to change the terms of your loan. If the lender does not agree to change your loan, you can apply for a court order so long as the amount borrowed is less than the hardship threshold listed on http://www.creditcode.gov.au/
Applying to court for a variation of a loan contract will not automatically stop the lender from taking action to recover the money you owe. You should ask the lender in writing (see sample letter 3 on the sample letter page) to stop all debt recovery action while the court considers your request. If the lender is not cooperative, you can ask the court to ‘stay’ (this means put on hold) the enforcement action while the court considers your request.
section of this guide give detailed instructions about how to apply to change the terms of your loan.
3. Claim on your insurance
If you took out unemployment, accident or sickness insurance when you got your loan, you may be able to claim on that insurance now. Check your policy or call your insurer to see if your policy covers your current circumstances.
If you find the insurance you bought was inappropriate for your circumstances, (eg you took out unemployment insurance when you were on a disability pension), or you were ‘forced’ to take out the insurance and you don’t think you should have been, then you may be entitled to a refund. Get legal advice.
If you are making an insurance claim, write to your lender and keep them informed of the process.
4. Apply for government mortgage relief
If you are facing serious, unexpected difficulties making home loan payments and you are in danger of losing your home, the Department of Housing may be able provide mortgage relief. You should call the department on
1300 654 322 and ask them about this. In the meantime, you should keep making your loan payments if you can. You will need to make a written application to the department and there is no guarantee your application will be successful.
5. Refinance the loan
The interest rates or fees on your loan might be more than the current market average. If you shop around you may be able to find a better deal. But beware — if you choose to refinance, make sure you are not just changing lenders without changing your ability to pay. Otherwise you might end up in the same financial situation you are facing now, just with a new lender.
To refinance the loan you will need to show the new lender you have the capacity to pay the loan. They will want to see evidence of your income.
The new lender will arrange to pay out the old lender. There might be a penalty attached to paying out the first loan early so check with your existing lender before you proceed.
Refinancing can be expensive. The Australian Securities Commission has created a checklist to help you decide if refinancing will help you. See the multi-loan calculator and checklist at http://www.fido.gov.au/
6. Access your compulsory superannuation
You may be able to access hardship relief (early release) of some of your superannuation. You should continue to make loan payments while you apply to your superannuation fund for the early release of some of your superannuation as the process may take some time. If accessing your superannuation is not going to solve your financial problems and will only delay the inevitable forced sale of your home, then it will not be worth it; if you need to claim bankruptcy down the track, any superannuation you accessed before going bankrupt will not be protected. You would be better off not accessing your superannuation and protecting your entitlements.
7. Reprioritise payments and access hardship policies of other billers
Your budget will usually include rates, phone, energy and other bills. Most companies have hardship policies that allow you to suspend or decrease payments during temporary hardship or when recovering from an illness, marriage break-up or other event that caused you high expense. You should contact your provider and ask for hardship assistance. Keep notes of any agreements made. If you are not getting assistance you can complain about your service provider to an ombudsman (ie the Telecommunications Ombudsman or Energy Ombudsman). A free financial counsellor may be able to negotiate on your behalf or access any one-off payments from Centrelink or other charitable organisations that may be able to help you. For a list of websites that offer free financial and budgeting tips see the Useful contacts page.
8. Sell a secured asset (with permission)
If you find you can’t keep up the payments on your loan, selling a secured asset might be the best option. It could save you some costs (eg registration, running costs and insurance if it is a car) and will wipe out or reduce your debt to a more manageable level. You need to get an idea of what the likely sale price is for the asset before selling it. You will need to get your lender’s permission to sell the asset if you won’t be able to pay out the loan from the money you get from the sale. If you owe money on the asset after the sale, you will still have to pay this money back to the lender even though you no longer own the asset.
It is possible to ‘introduce a buyer’ for your goods. If the lender refuses to give permission to sell the goods to that buyer, and the goods are later sold at a lower price, you might have a right to recover the difference between the sale price you arranged and the eventual sale price. It may be that the lender is responsible for this loss. Get legal advice.
9. Give back the secured assets to the lender to sell
It is often possible to voluntarily surrender your goods to the lender so they can sell them and recover some of their losses. The lender must sell the assets at the best price reasonably obtainable. If your loan was for a car, take photos and get written evidence of the market value (physical appearance and mechanical function) before handing it over. Take any personal possessions out of the car. Even though you will have avoided some repossession costs, storage and auction fees will still be added to your loan.
When you voluntarily surrender a car your rights are affected. Get legal advice before taking this action.
Always:
- Make a note of all telephone conversations with your lender. Keep notes of the time and date of the call, details of who you spoke to, what was said, and what was agreed. Follow up any agreement on the phone with a letter confirming the details (see the sample letters page).
- Keep a copy of all letters you send to or receive from the lender.
- Keep your lender informed of your current address in writing.
Do I need financial counselling?
When weighing up your options, you may benefit from some help. Financial counsellors can prepare budgets and negotiate on your behalf with lenders. Financial counselling is free. They may assist you with seeking a variation of your contract. They can also help you explore options such as increasing your household income (eg renting out a vacant room) or decreasing your expenses. Some financial counsellors will explore whether bankruptcy is a suitable option for you. For a list of financial counsellors in Queensland, call Legal Aid Queensland on 1300 65 11 88.