Are you trying to negotiate a repayment arrangement using financial hardship? If so, here are some important things to consider.
Financial hardship means you are having difficulty in repaying your loans and debts when they become due because of two main reasons:
A Loan you can afford to pay, but now you can no longer do so, because of changes in your circumstances
Let’s say, John, a bank manager obtained a $1000 loan with a repayment amount of $100 per month. He was able to pay consistently for the first few months. But, his wife got laid off from the job, reducing their monthly family income. While he promised to keep up with the payments, his take home pay will not be able to cover his repayments anymore.
Second, you took out a loan you cannot afford to pay back
If you know that the monthly repayment is too high, but you still obtained the loan because you needed it—it’s time to get legal advice. You may have entered into this type of financial obligation for two reasons – first, you didn’t know about the exact loan terms because you are dealing with a predatory lender. Or, you already know about it but you thought that you can somehow pay back either by increasing your income or working on a really tight budget.
When Can You Apply for a Hardship Application or Changes to a Consumer Credit Contract Because you are Facing Financial Hardship?
You can ask your lender for a change to the terms of the consumer credit contract, credit card personal loan, and mortgage only when the following elements apply:
- You suffered from job loss, illness or injury or any hardship you couldn’t reasonably see coming. It could also be due to a divorce or splitting with a partner or untimely death of your significant someone.
- Such hardship is the main reason why you cannot reasonably meet your debt repayments
- You can meet your debt repayments if the lender changes the contract in accordance with the Credit Act
Can the lender ignore my hardship application? No. The moment you submit a hardship application, the lender has no other choice but to follow the processes stated in the Credit Act. But, it doesn’t mean that you no longer have to contact your lender to negotiate the terms of the contract prior to such application. Remember that borrowers in default only have a limited period of time to file for financial hardship. So, if you cannot make your debt repayments for this month make sure to contact your lender quickly.
Can I Make a Financial Hardship Application Anytime?
Yes. But, you only have four months to apply for hardship (unless the lender agrees to consider your application) if:
- You have been in default for at least 2 months or two weeks for those who received a repossession warning notice; and
- You missed four consecutive repayments.
What are the Changes in the Contract Allowed by the Credit Act?
As a borrower, you can ask your lender to change the contract by:
- Extending the term of the loan to lower the repayment amount
- Postpone your debt repayments within a specified period
- Or both
How Many Times Can I File a Hardship Application to the Same Lender?
You can only submit one hardship application based on the same grounds within the four-month period. For example, Letty has been in default for 2 months – August to September 2017, because she lost her job. She may only file one application based on unemployment within the four month period – October 2017 to February 2018. If she somehow paid her defaults, she can file another hardship application with the same lender.
What Type of Loans are Covered with the Credit Acts’ Financial Hardship Provision?
The Credit Act only applies to personal loans or those debts incurred for household and domestic purposes, such as:
- Car loans
- Consumer leases
- Credit cards
- Home loans
- Investment property loan
- Personal loans
If you incurred a debt for business purposes, but more than 50% thereof was actually used for your personal consumption, the hardship provision will still apply. Let’s say, you took out a home loan to inject funds into your working capital. But, more than half of the money was actually used for home improvement. In such a case, it will still be covered by the CCCA (Consumer Credit Counseling Agency) because more than half of the loan proceeds were used for your personal and household purposes.
Make sure you can pay the loan for the term of the loan
So, when you apply for a loan and the credit provider asks you to sign a business/investment purposes declaration, make sure that you have the money to make repayments within that period. Don’t affix your signature if you are not sure of your repayment capacity. Otherwise, such declaration would serve as proof that the Credit Act does not cover your loan and that you cannot ask your lender to make your repayments, more ‘affordable’.
Do you want to learn more about financial hardship? Clean Credit can help you. Enquire now!