Under the Credit Contracts and Consumer Finance (CCCFA) Act 2003, as a borrower, you have the right to ask the creditor to change your loan contract if you meet the following criteria:
- You have suffered a hardship you couldn’t reasonably have seen coming, such as illness or injury, loss of employment, the end of a relationship, or death of a partner or spouse as a result of that hardship; and
- You cannot reasonably meet your debt repayments; and
- You believe you would be able to meet your debt repayments if the contract was changed in the ways specified by the CCCFA (see below).
An application to change your loan contract in these circumstances is called a ‘Hardship Application’. It is important that you contact the creditor quickly if you cannot make your debt repayments as you have a limited time to make a hardship application if you are in default.
When can you make a hardship application?
You can make a hardship application at any time, unless you:
- Have been in default for two months or more; or
- Have been in default for two weeks or more after receiving a repossession warning notice or Property Law Act notice; or
- Have failed to make four or more consecutive debt repayments on their due dates.
You may only make one hardship application on the same grounds within any four month period, unless the creditor agrees to consider another application.
If you catch up on your debt repayments and defaults, you are again entitled to make a hardship application.
How do you make an application for hardship?
Firstly, you should check your loan contract to see whether it includes Credit Contract Indemnity Insurance (CCI) which may cover you for the loss of your job, sickness or the hardship that you face. If you have CCI, your loan repayments may be covered. However, it is a good idea to apply for hardship at the same time as making an insurance claim, in case the insurance claim is declined.
You must make an application in writing (via email or post) to explain your reason(s) for the application, and request one of the following:
- An extension of the term of your contract – this will reduce the amount you pay with each repayment, but increase the number of repayments; or
- A postponement of the dates on which payments are due under the contract; or
- Both of the above
Once your application has been received, the creditor will contact you in writing outlining the process from there. If the creditor does not require any further information from you, a decision will be made within 20 working days of receiving your application.
If the creditor agrees to your requests, they may ask you to enter into a new loan contract or may change the terms of your existing loan contract to help you meet your obligations. If the creditor agrees to a hardship application, you will have to pay a new loan establishment fee or a variation fee as per the fee schedule.
You can make an application for unforeseen hardship in writing. Please refer to your loan contract for the contact details of your creditor.
For more information about applying for unforeseen hardship, please refer to this handy Commerce Commission fact sheet.