What is financial hardship and what are your rights?

You are in financial hardship if you have difficulty paying your bills and repayments on your loans and debts when they are due. Under credit law you have rights when you are in financial hardship.

This page explains your rights and obligations under the law.

What is financial hardship?

Financial hardship is difficulty in paying the repayments on your loans and debts when they are due. There are often two main reasons for financial hardship: 1. You could afford the loan when it was obtained but a change of circumstances has meant you can no longer afford the repayments; or 2. You could not afford to repay the loan when it was obtained. If you are in the second category get legal advice immediately.

If you are in financial hardship you have certain rights if your loan is covered by the credit law.

If you have a credit card, personal loan, car loan or home loan the credit law will apply if the loan was taken out for personal purposes. Even if the credit law does not apply you can and should use financial hardship to try to negotiate a repayment arrangement.


Financial hardship and credit law

The credit law has sections (72–75) that specifically deal with financial hardship. Section 72 of the credit law covers the circumstances where you can request a repayment arrangement on the grounds of financial hardship. This is called a hardship variation.

You must be having (or will have) trouble making your loan repayments because of reasonable cause (eg illness or unemployment). This is a very wide definition.

Remember You can ask for any type of repayment arrangement as long as it will reasonably repay the loan. You are entitled to request financial hardship even if the other co–borrower does not agree or is unable to be contacted.


How to apply for a hardship variation under the credit law

You can call, write or email the lender requesting a repayment arrangement. A sample letter is available here.

Keep a copy of the letter you send. If you ask for a hardship variation over the phone keep notes on what was said. When asking for a hardship variation, you should consider the following:

  1. The lender is more likely to accept your request if it is reasonable. If you can meet even some of the loan commitments during your period of hardship this will help
  2. Ask the lender to send out a financial statement to complete. This means giving details of:
  • The reasonable cause for hardship, for example, doctors' certificates for an illness;
  • Your current income and other major financial expenses, for example, other loans; and
  • What repayments you can afford.

Remember 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.

Under the credit law if you request a variation of your contract because of financial hardship then:

  1. The lender can request further information. This request must be made within 21 days of your request for hardship.
  2. You must provide any relevant information requested
  3. The lender must then respond in writing within 21 days stating:
  • Whether the lender agrees to the change, and
  • If the credit provider does not agree to the change, it must notify you of the contact details of the external dispute resolution scheme (EDR); your right to go to EDR and the lender’s reasons for refusing the hardship application.

See Negotiate payment terms for more tips.

If you are unsuccessful in EDR, or your lender is not a member, you still have the option of going to court but get legal advice before you do this.

See the Know your rights page for information about your rights with different types of creditors.


What if I am not eligible for a hardship variation under the credit law?

You should still contact the lender and explain your situation. Ask for a reduction in (or postponement of) 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 get advice. If court proceedings are commenced, you must get legal advice immediately.

Your creditor's rights

Creditors have rights under the law and as a result of the contract you have with them. These rights allow your creditor to pursue you for money you owe them.

Your creditor’s rights

They can take action to recover their money by following a lawful process. They may:

  • send you a default notice. When the loan is for personal purposes or to buy an investment property a default notice must be sent (giving at least 30 days to pay) before further action is taken;
  • accelerate the debt. This means the entire debt becomes due and payable. For loans for personal purposes or to buy an investment property, a default notice must have been sent and the time given in which to pay the debt must have expired.
  • seize any property they have secured - including repossessing your home. The creditor cannot take property that is not security for the loan unless they obtain a court order;
  • evict you from rented premises if they are your landlord. Notice is usually required before eviction;
  • disconnect your gas or electricity if they are your utility provider. A notice must be sent before disconnection;
  • disconnect your phone if they are your service provider. A notice must be sent before disconnection;
  • take you to court. You must be sent a summons or statement of claim and be given the opportunity to file a defence.


Our tips

  • Act quickly and get legal advice
  • If you believe you do not owe part or all of the debt, get legal advice
  • Making a repayment arrangement can often stop the creditor taking any of the above actions
  • External Dispute Resolution (if available) may help if the creditor will not agree to the payment plan you are offering