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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 lawyer 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.
If the answer is yes, read the ‘Your options’ below.
If you don’t owe the money, under the National Credit Code you have the right 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 disagree with you, the lender must write back to you explaining why they believe you owe them this amount of money.
If you disagree with your lender’s explanation you can lodge a complaint with the lender’s IDR team and ask them to review the lender’s decision.
If the IDR team reviews your complaint but you are not satisfied with their decision, you can lodge a free complaint with an EDR scheme. The Australian Financial Complaints Authority is the only EDR scheme for banking and finance issues, replacing the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO).
If the National Consumer Credit Protection Act and the National Credit Code apply to your loan, you might be able to change the contract if you can show it was ‘unjust’ (unfair). If you think your loan is unjust, get legal advice about the contract. Some of the reasons a contract may be unjust include:
The contract might also be found to be unjust if the lender:
If you agree you owe the money but you’re struggling to pay it back, consider these options:
The simplest way to prevent the lender taking further action is to bring the payments up to date as soon as possible. This amount must include all of the lender’s interest, costs, legal fees and court costs. Consider whether you could sell any unsecured assets to raise the money needed to bring your payments up to date.
Sections 72–75 of the National Credit Code allow borrowers to apply to change their loan if they are experiencing financial hardship.
See How do I change the terms of my loan? 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 asking the court to change your loan on the grounds of hardship so long as the amount borrowed is less than the hardship threshold.
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 for a stay of debt recovery (see the Sample documents and forms) 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 (put on hold) the enforcement action while the court considers your request.
If a lender does not agree to change your loan, you can still lodge an EDR complaint with the Australian Financial Complaints Authority. It is free for consumers to lodge a complaint with the Australian Financial Complaints Authority.
Having an EDR complaint lodged against a lender will prevent the lender from taking another enforcement step (including progressing court action) while the EDR scheme reviews your complaint. If the lender agrees to a hardship arrangement in the EDR process and you keep your side of the arrangement, the court action will not go ahead.
As EDR schemes are a low or no cost jurisdiction, they can help you keep your costs down while you try to get a hardship arrangement put in place for your loan. The Australian Financial Complaints Authority is the only EDR scheme for banking and financial issues.
If you took out unemployment, accident or sickness insurance when you got your loan, you may be able to make an insurance claim now.
Check your policy or call your insurer to see if your policy covers your current circumstances.
If you find your insurance is inappropriate for your circumstances (eg you have unemployment insurance but are on a disability pension) or you are paying for insurance you didn’t know you took out, then you may be entitled to an insurance premium refund. Get legal advice.
If you are making an insurance claim, write to your lender and keep them informed of the process.
If you are facing serious, unexpected difficulties making home loan payments and you are in danger of losing your home, you may be able to get a mortgage relief loan from the Department of Housing and Public Works. Call the department on 1300 654 322 and ask them about this. In the meantime, keep making your loan payments if you can. You must apply in writing to the department and there is no guarantee your application will be successful.
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 can pay the loan. They will want to see evidence of your income and expenses. Lenders have responsible lending obligations to assess whether you can make the loan payments without experiencing substantial financial hardship.
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. If you are considering refinancing, you should get financial advice.
You may be able to access some of your superannuation early on financial hardship grounds.
Be aware that it may take some time to process your hardship relief application, so it is important you continue to make your loan payments while you apply.
Don’t apply to access your superannuation early if it’s not going to solve your financial problems and will only delay the inevitable forced sale of your home. Be aware that if you need to claim bankruptcy down the track, any superannuation you accessed before going bankrupt will not be protected. In this case you would be better off not accessing your superannuation and protecting your entitlements.
Your budget will usually include rates, phone, energy and other bills. Most companies have hardship policies that allow you to suspend or reduce 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 Industry Ombudsman www.tio.com.au or the Energy and Water Ombudsman www.ewoq.com.au). A financial counsellor may be able to negotiate on your behalf or access one-off payments available from Centrelink or other support organisations. Call the National Debt Helpline on 1800 007 007 to speak to a free financial counsellor.
See Useful contacts for a list of websites that offer free financial and budgeting tips.
If 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.
There are motor vehicle price comparison websites that can give you an idea of possible sale prices for your vehicle/s.
You will need your lender’s permission to sell an asset if you can’t pay out the loan from the sale. If you still owe money on the asset after the sale, you will 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 asset. If the lender won’t give permission to sell the asset to that buyer, and the asset is later sold at a lower price, you may have a right to recover the difference between the sale price you arranged and the final sale price. The lender may be responsible for this loss. Get legal advice.
It may be 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 may avoid some repossession costs, the lender’s 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 giving the lender your assets.
You may find it helpful to speak to a financial counsellor when weighing up your options. Financial counselling is a free service.
Financial counsellors can prepare budgets and negotiate on your behalf with lenders. They may help you get 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 or the National Debt Helpline on 1800 007 007.