Loans, credit cards and income tax

The creditor may agree that you can:

• stop making repayments for a short time, such as 6–12 months
• make lower repayments for a short time
• change to interest-only repayments for a specified period
• pay by instalments
• reduce the total amount owing
• extend how long you have to pay the loan (the loan term).

Making a payment arrangement as soon as possible can protect your credit rating. If you apply for a loan in the future, the lender will usually check your credit report before approving the loan.

Contact the creditor to make a payment arrangement. Make sure you get any agreement in writing, and check what interest and fees you will need to pay. Speak to a lawyer or financial counsellor if you need help understanding the documents.

This is usually a temporary arrangement to help you manage short-term financial difficulties. It is a formal process where you ask your credit provider to change the terms of your loan contract. It is usually only offered by lending institutions and banks.

To be eligible to apply for a hardship variation, you will usually need to meet the following criteria, although these can change between lenders:

• the loan is for a personal reason (e.g. home loans, personal loans or car loans), not a business loan 
• you can reasonably repay the adjusted amounts agreed under a varied loan contract – maybe you are planning to go back to work after treatment, or you can pay off your debt over a longer term
• you can’t make your repayments at the moment because of illness, unemployment or some other reasonable cause.

Even if you don’t meet the above criteria (e.g. your loan is a business loan), your credit provider may still be willing to help you, although it won’t be called a hardship variation.

To apply for a hardship variation, write to or call your credit provider and explain your situation. You can also ask a financial counsellor to negotiate for you. If you ask someone else to negotiate on your behalf, you will probably need to fill in a form, usually called a third party authority form. This authority confirms that you have authorised this person to act on your behalf.

You can ask for reduced repayments or a complete hold on repayments for a specific period of time or until your situation has improved. 

The credit provider will usually continue to charge interest on the loan even if repayments are reduced or on hold. This means that the loan balance may increase, which could increase your instalment payments once your period of hardship variation ends. Check with your creditor about the terms that apply to you.

Your credit provider may ask you for more information about your finances to help them with the decision. Work out what you can afford to pay before you talk to creditors. Once you agree to an amount, it may be difficult to change it. You can usually pay more if you find you can afford to. Remember, the creditor is focused only on the amount you owe them.

Getting a hardship variation may protect your credit rating if you get a variation agreement early and you stay up to date with the lower repayments. Sometimes credit providers are required to report any defaults on loan repayments immediately, which can affect your credit rating. If you have a hardship variation agreement and think you might miss a payment, tell your credit provider straightaway. 

If your application for a hardship variation is refused, the credit provider must give written reasons. If you think the reasons provided are unfair, you can complain through an external dispute resolution scheme. Sometimes, your credit provider will ask for more information. Make sure you respond by the date set by your credit provider so your hardship variation request can be assessed.

If you think you will not be able to reasonably repay the loan, you may need to consider other options. These may include a debt release on compassionate grounds, selling assets or, as a last resort, bankruptcy.

This is known as debt release on compassionate grounds, and it is rare. It is usually an option only for people who have been on Centrelink benefits for a long time and have no assets except household goods and tools of trade.

If you think you may be eligible, ask a financial counsellor or a community legal centre to help you apply to have your debts released. Debt release can affect your credit rating, so find out what this means before going ahead.

If you receive an official court document, such as a statement of claim, you will have only a limited time (usually 21 or 28 days) to file a formal response at court.

A statement of claim sets out what your creditor thinks you owe them. If you disagree with the claim, you need to lodge a defence with the court.

If you need legal help, you can search for your nearest community legal centre or ask your financial counsellor to refer you to a lawyer. You can also call the National Debt Helpline on 1800 007 007 for more information.

If you agree you owe the amount in the claim but are not in a position to pay it, you can try to negotiate a payment plan with the creditor.

You may also have the right to get the statement of claim put on hold and use an external dispute resolution (EDR) scheme. This may give you an opportunity to set up a payment plan with your creditor. Seek advice from a financial counsellor or lawyer if you think the dispute could be referred to an EDR scheme, or if you are unsure.

If you don’t file a formal response or appear at the hearing, the creditor can get a default judgment against you. This means that the court will order you to pay the money owed to the creditor.

If you don’t pay, the creditor may be able to take (repossess) some of your income or assets and sell them to get the money you owe.

Some debt collectors may give you documents that look like a statement of claim but haven’t actually been issued by a court. This is fraud and is against the law.

If you are not sure whether the statement of claim you have received is genuine, check with a lawyer.