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This booklet is a guide to your options if you can’t meet your loan payments
For a period of 12 months starting 1 July 2019, the Australian Financial Complaints Authority’s (AFCA) jurisdiction will be expanded to allow them to consider previously unheard disputes falling within its terms of reference relating to conduct dating back to 1 January 2008.
Legal Aid Queensland believes the information provided in this guide is accurate as at January 2018 and does not accept responsibility for any errors or omissions.
This guide can help you understand what can happen if you’ve missed loan payments or are having trouble keeping your loan payments up to date.
This guide has information on:
If you go to court, this guide assumes your claim will be heard in the Magistrates Court—generally, if your loan debt is less than $150,000 it will be heard in the Magistrates Court. Please refer to Am I eligible to go to an EDR scheme or court? to find out which court you would need to go to for loan debts more than $150,000. This guide has sample letters and forms you can follow when you need to put something in writing. You can get copies of the forms from the Magistrates Court registry or from the Queensland Courts website www.courts.qld.gov.au
There are laws that protect people who enter into loans (consumer credit contracts). These laws are the:
Some of the options listed in this guide are only available if your loan is regulated by the National Credit Code. This guide assumes (unless it says otherwise) the National Credit Code applies to your loan.
The National Credit Code applies to loans where:
Do not use this guide if your problem is not about money you have borrowed.
Even if this guide does not apply to you, you should still get legal advice about your loan to help you understand your options. Call Legal Aid Queensland on 1300 65 11 88 (cost of a local call from a landline in Queensland).
If you took out the loan in another state, you should contact Legal Aid in that state because the law may not be the same.
Yes. You should use this guide along with legal advice. Never make any decisions without speaking to a lawyer first.
You can get legal advice from:
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.
You will need to write a letter to your lender asking them to vary the terms of your loan due to hardship. In order to succeed in getting your loan changed you will need to show:
Note: Your plan must be clear and logical. Your lender is unlikely to accept a proposal that merely delays the inevitable.
The lender does not have to consider your proposal, but if they don’t, you could use this as evidence in court, or in an EDR scheme, of an unreasonable attitude.
See the sample letter in Sample documents and forms.
If your lender agrees to your request, ask them to confirm their agreement in writing. Keep this correspondence in case you need to use it later.
If the lender refuses your request, under the National Credit Code you have the right to take the matter either to court or to an EDR scheme. EDR schemes are
a cheaper option than court as they are free for consumers and there is no risk of costs being awarded against you.
If you go to court you will have to pay legal costs. This can be difficult if you are already suffering from financial hardship. Be aware that once the court makes a judgment about your matter, your rights to make a hardship application to an EDR scheme are severely restricted.
Lenders may also have obligations under a Code of Practice to help you when you are in hardship or financial difficulty. These Industry Codes of Practice have hardship obligations for lenders:
You can complain to the Australian Financial Complaints Authority when a lender does not follow the Code of Practice they have subscribed to. The lender cannot start court proceedings against you while your complaint is with the Australian Financial Complaints Authority. Contact:
The Australian Financial Complaints Authority
1800 931 678
The Australian Financial Complaints Authority is the new EDR scheme that has replaced the FOS and the CIO from 1 November 2018. You retain the same rights to complain about your lender’s conduct if they do not properly consider your hardship request.
If you can tick all of the following points, you are eligible to go to an EDR scheme or court:
All consumer credit lenders must be a member of the Australian Financial Complaints Authority.
In most instances, if you want to apply to the court for a variation of your loan contract, you must file an application in the Magistrates Court.
Generally if your loan debt is less than $150,000 it will be heard in the Magistrates Court. Disputes between $150,000 and $750,000 are heard in the District Court, and disputes over $750,000 are heard in the Supreme Court. Remember, this only applies to loans taken out in Queensland. If your loan originated in another state, contact the Legal Aid office in that state for advice on how to apply for the court to vary your loan contract.
If the lender has already started court proceedings against you in the District or Supreme Court, then you will need to bring your application to the relevant court to temporarily stay (put on hold) those proceedings.
If you’re not sure where to lodge your claim, get legal advice to confirm the correct court for your matter.
Lodging a complaint with the Australian Financial Complaints Authority’s EDR scheme temporarily puts on hold any existing court proceedings while the EDR scheme reviews your complaint.
If you are lodging a complaint with an EDR scheme, make sure you put forward a reasonable and practical proposal that addresses your financial hardship. Lodging a complaint to buy time does not usually help you to get out of your difficult circumstances.
You can lodge a complaint with the Australian Financial Complaints Authority’s EDR scheme online or on the phone. Contact:
You do not need a lawyer to lodge a dispute with an EDR scheme.
You do not have to appear before an EDR scheme like you do in court. The EDR scheme will make a decision about the dispute after reading all the documents you and the lender have lodged.
There are no specific documents or special forms that you have to provide to an EDR scheme as part of a dispute. However it is important you provide evidence of conversations you have had with your lender, and letters the lender has sent you about your loan and your request for financial hardship.
Make sure you respond to the EDR scheme by the deadline they set for a response. If there is a good reason why you cannot respond before the deadline, then you should ask the EDR scheme for an extension before the deadline expires.
Unlike court, an EDR scheme can make a fair and reasonable decision in line with the law and good industry practice.
If you get a new loan payment plan agreement through the EDR scheme, make sure you keep your side of the agreement and make your payments on time, as it is very difficult to be successful in another financial hardship application before an EDR scheme if you haven’t been able to follow a previous agreement.
If you want to apply to the court to change your loan contract, you need to follow these steps:
You will need the following forms:
You can get copies of the forms from the Magistrates Court registry or from the Queensland Courts website www.courts.qld.gov.au (go to the Forms section and look in the Uniform Civil Procedure Rules 1999 category).
Note: All the forms you complete must be typed or neatly written in blue or black ink.
There is a sample Form 5 — Originating application in Sample documents and forms you can use as a guide to help you complete the form. In the form you are the applicant and the lender is called the respondent. You will see the form asks the court to make orders about what you want to happen. If you are having trouble with the wording, ask a lawyer to help you.
There is a sample Form 46 — Affidavit in Sample documents and forms you can use as a guide.
An affidavit is a signed, written statement that supports your application. It tells your story to back up your request for the orders in the application.
The affidavit should:
Use the Form 46 — Affidavit template to prepare your Affidavit of service. There is a sample Form 46 — Affidavit of service in Sample documents and forms you can use as a guide. An Affidavit of service is the document you will present to the court to show you served your completed forms and documents on the lender. Your affidavit must be witnessed by a commissioner of declarations, justice of the peace or a lawyer.
Use the Form 59 — Order to prepare your Order. There is a sample Order in Sample documents and forms you can use as a guide. In your Order you can tell the court what decisions you want it to make about your matter.
Take your forms and documents to a commissioner of declarations, justice of the peace or a lawyer, and sign each page in their presence. They will also sign and mark the date and place where they witnessed your affidavit.
To find a justice of the peace near you, visit www.qld.gov.au and type ‘find your nearest justice of the peace’ in the search box.
You need to make three copies of all your forms and documents as you will file three copies with the court, and serve one copy on the lender.
File three copies of your forms and documents at the Magistrates Court registry and pay a filing fee. You can ask the court to refund the filing fee on the basis of hardship when you appear in court. The clerk at the court will arrange a hearing date and write it on your application.
You must serve (deliver) one complete copy of your forms and documents on the respondent (the lender). Do this as soon as you can as you must give the lender enough time to prepare for court. Get legal advice about this.
You can either deliver the documents in person to their head office or send them by registered post, which means the person receiving them must sign for them when they are delivered. You should get evidence to show the documents have been received. If you deliver them in person, ask the receptionist to sign an acknowledging receipt. If you send them by registered post, keep your Australia Post receipt.
If the magistrate orders a change to the contract or mortgage, the lender must send you a notice within 30 days of the hearing setting out the new terms of the loan.
Once you have a new payment plan it is important that you make payments exactly as agreed. You must keep your lender informed if you have any further difficulties with the loan, and be aware it would be much harder to renegotiate a loan a second time with the same lender.
It is also more difficult to successfully bring another application for financial hardship before an EDR scheme or court if you haven’t been able to follow a previous agreement.
If you cannot keep making payments on your new payment plan, be aware it is also very difficult to successfully make another financial hardship application before a court.
We have described these words as we use them in this guide. If you are still not sure what a certain term means, ask your lawyer to explain it to you.
Affidavit – A statement sworn under oath in the presence of a commissioner of declarations, justice of the peace or a lawyer.
Arrears – The amount you have fallen behind in your payments.
Default – Your loan is 'in default' if you have not met a condition in your loan contract, like not making a payment on time.
Deponent – A deponent is a person who makes a statement (deposition) under oath. On the forms you submit to the court (see samples in Sample documents and forms) the term 'deponent' refers to you, the one making the affidavit.
Enforcement proceedings – These are actions a creditor takes to recover a debt (get their money back). Enforcement proceedings can include:
Hardship threshold – The hardship threshold is the maximum amount of money you can owe and still have options available under the National Credit Code to change your loan conditions if you have financial problems.
If your loan is less than the threshold amount you can ask your credit provider, or even the court, to change your payment obligations if you are having financial problems.
The threshold changes every three months because it is linked to average loan sizes in New South Wales. You can check the current threshold at www.moneysmart.gov.au/managing-your-money/managing-debts/trouble-with-debt/hardship-threshold
Interest – Interest is money you pay to the lender for borrowing their money. It is the main cost of borrowing money. Most people's interest payments will add up to more than the amount they originally borrowed, particularly if the loan is being paid back over 20 or more years. Interest is usually talked about as an annual percentage rate. Your contract should give details about how it is calculated and charged.
Lender – The bank, finance company or other institution who has lent you money. These may also be referred to as the 'creditor'.
Loan contract date – This is the date the last person signed the loan contract. The date will be on your contract.
National Credit Code – The National Credit Code is part of the National Consumer Credit Protection Act. The National Credit Code is an Australian law that sets rules about the way credit is provided to consumers (not businesses). If a loan is regulated by the National Credit Code it means the lender has to meet certain obligations towards consumers and can be penalised for not doing so.
National Consumer Credit Protection Act – The National Consumer Credit Protection Act is an Australian law that makes rules about the way credit is provided to consumers (not businesses). If a loan is regulated by the National Consumer Credit Protection Act it means the lender has to meet certain obligations towards consumers and can be penalised for not doing so.
Periodic payments – These are regular payments required under your contract.
Principal – The principal is the amount of money you borrowed. It does not include any interest you agreed to pay under the contract.
Secured asset – Something you own like goods, a car or property (assets), which is listed in your loan documents as security. If you default on the loan, the lender can take this security (provided they give the correct notices) and sell it to recover the money you owe them.
To speak to a free financial counsellor, call the National Debt Helpline on 1800 007 007. You can also visit Legal Aid Queensland’s website www.legalaid.qld.gov.au or call 1300 65 11 88 to find out about free financial counselling services in your area.
Financial Counselling Australia — www.financialcounsellingaustralia.org.au
Lifeline Australia — www.lifeline.org.au
The Salvation Army — www.salvos.org.au
St Vincent De Paul Society — www.vinnies.org.au
Moneysmart — www.moneysmart.gov.au
Last updated 14 July 2022