Financial hardship is becoming more and more prevalent in our society today. Unfortunately, at present, many are feeling tremendous financial pressure given the rising cost in living expenses.  With shortages on many items, rising transportation costs and unseasonal weather, prices are increasing and sadly this is just the beginning.

With the cost of basic food and groceries, fresh fruit and vegetables, the major increase at the bowser, electricity prices, private health, and various other insurances and of course the hike in interest rates, it is understandable that many are feeling overwhelmed particularly when there has been no increase to the minimum wage to accommodate for these increases.

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What is Financial Hardship?

Financial Hardship is described as a person’s inability to pay their bills or loans by the due date.

In accordance with the National Credit Code (NCC), with consumer credit law, such as home loans, credit cards and personal loans, individuals have a legal right to seek assistance when they are suffering financially.

Financial hardship is usually short term and can be caused by a change in financial circumstances, or it could be the case that the individual could not afford the loan or repayments in the first place.  If this is the case, it is imperative that legal advice is sought as a matter of priority.

Most finance providers will allow a period of 3-6 months, with a review at the end of this period and the possibility of a further extension if needed. A further extension is however dependent on whether new issues have arose causing further hardship.

Falling behind on loan repayments or worrying about upcoming bills can be distressing, therefore understanding your rights in these situations can be extremely helpful.

Ask for a Payment Arrangement

Seeking an arrangement on the grounds of financial hardship is a viable option and is required to be reviewed by the creditor.  The creditor is then required to provide a fair response.

If your intention it to put forth a repayment offer or a variation of some description, you need to review your finances and figure out how much is feasible.  Once you have done this, put forth your repayment offer to the creditor’s hardship department.

Once notice of hardship is provided, the creditor is required to cease action until a response is provided.  In order for the creditor to assess your offer, you may be required to provide information in relation to your financial situation, namely your income, expenditure, and information around what has caused the hardship i.e., loss of employment, decrease in hours, health issues, separation, divorce, decline or closing down of a business or even the death of a family member.

Its also important to keep a record of any telephone calls made and keep a folder with all documentation relating to your hardship case as it may be required down the track if you are unable to find a resolution.

A response should be provided by the creditor within 21 days unless of course further information has been requested to support your hardship.  The creditor will either accept your repayment offer or it will be declined detailing the reasons why and you will be advised of your right to review the decision made.

If the creditor has accepted your repayment offer, you must comply with it and payments should be made on time.  If you find you are still having trouble complying with the arrangement, despite the variation, contact the creditor to discuss further options.

In the instance where a payment arrangement has been rejected by the creditor, you can put forth an alternative offer, seek to have the decision reviewed by the Australian Financial Complaints Authority or you can seek legal advice.

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Financial Hardship in Credit Law

If pursuant to credit law you are unable to seek a variation based on hardship, contact should still be made as there is no harm in asking for an extension or having your payments reduced.  If this is agreed to, make sure it is documented and you receive confirmation in writing.

If the creditor is still unwilling to accept a variation and you are unable to find a resolution, contact a financial counsellor and they will be able to assist you. A financial counsellor will help you get your finances back in order. Alternatively, legal advice should be sought if it is the case that proceedings have already commenced.

Unfortunately, by the time you apply for hardship, your credit file will already have been affected.  Once a default is placed on your credit file, it can strongly affect your ability of obtaining finance or loans in the future.

Given this, if it can avoided, its better that you act sooner rather than later, for example, if you have a loan repayment due but you know you are unable to make the payment due the due date, contact the lender immediately and do not let this be a hinderance in the future.

If court action is being threatened, you should immediately prepare and send a request in writing seeking a variation to your repayments and/or contract or lodge an application with the Australian Financial Complaints Authority and ensure you receive confirmation of the complaint being lodged via email.  If you have a complaint open, legal action cannot commence.

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