Financial hardship arrangement
When you’re struggling to make your loan repayments because of changed circumstances — such as a loss of income, illness, or other unexpected financial pressure — you have the right to ask your lender for a financial hardship arrangement.
A financial hardship arrangement is a change to the terms of your loan that can make your repayments more manageable while you’re experiencing difficulty.
What is a financial hardship arrangement?
A hardship variation is an arrangement you negotiate with your lender to change the terms of your credit contract, either temporarily or permanently, so that it fits with what you can reasonably afford to pay.
Depending on your situation, a variation could:
- Reduce your regular repayment amounts
- Give you more time to pay by extending the length of the loan
- Temporarily pause repayments or adjust how interest is applied
- Change other features of the contract to make it easier to meet your obligations
A hardship variation is a formal agreement between you and your lender.
Who can ask for a hardship variation?
If you have a credit contract — such as a personal loan, credit card, car loan, or home loan — and you can’t meet your repayments because of financial hardship, you can ask your credit provider to consider a hardship variation.
Hardship can arise for many reasons, such as:
- Loss of work or income
- Injury or illness
- Relationship breakdown
- Increased living expenses
- Other circumstances outside your control
How do you apply for a hardship variation?
To ask for a hardship variation:
- Contact your lender’s hardship team either by phone, online or their app.
- Explain your situation — why you can’t meet your current repayments, how long you expect the hardship to last, and how much you believe you can afford to pay. Having a clear picture of your income and expenses can be helpful – you can use our budget planning tool to do that.
- Provide any supporting information the lender asks for, such as proof of income, expenses or evidence of changed circumstances.
Our short video explainer covers what to say to a lender.
What your lender must do
Under the National Credit Code, your lender must consider your request fairly and respond within a set time fame (generally 21 days). They can agree to a variation, propose a different type of arrangement, or refuse — but they must let you know.
If your lender agrees, the new repayment terms will form part of your contract.
What if your lender refuses?
If your lender refuses your hardship variation request, they must give you a reason. If you disagree with their decision or feel it has been unfairly handled, you can:
- Ask the lender’s internal dispute resolution team to review the decision
- Contact the Australian Financial Complaints Authority (AFCA) for free, independent dispute resolution
- Get support from a financial counsellor to assist with your complaint or next steps.
Things to keep in mind
- A hardship variation will show on your credit report and for 12 months after that. It cannot be used in calculating your credit score.
- The hardship variation may be temporary (to help you get back on your feet) or permanent (changing your terms long-term), depending on what you and your lender agree.
- A hardship variation is just one option. It doesn’t prevent you from exploring other support or debt solutions if your situation changes.
Need help asking for a hardship variation?
You don’t have to navigate this alone. Free, confidential support is available:
- National Debt Helpline – 1800 007 007
- Mob Strong Debt Helpline – 1800 808 488 (for Aboriginal and Torres Strait Islander people)
Talking to a financial counsellor can help you prepare your case and understand your rights before you contact your lender.
What happens when you go bankrupt?
In practical terms, being bankrupt means no longer paying off the remainder of any unsecured debts.
Bankruptcy is a last resort, and we recommend carefully considering alternatives. Bankruptcy has many long-term implications to your life and career and doesn’t cover all debts. Check out the Australian government’s website for detailed information about bankruptcy.
Bankruptcy can be entered into voluntarily or a person can be made bankrupt through a court process. This is sometimes called forced bankruptcy.
As part of this process, a Trustee will be appointed or assigned. This trustees will have significant power to determine what happens to a person and their assets.
What are the consequences of going bankrupt?
Before going ahead, it’s important to be aware of the implications of bankruptcy.
These include but are not limited to:
- Some debts might still need to be paid off
- It will be more difficult to obtain credit (for credit above a certain limit, you will need to disclose that you are bankrupt)
- A Trustee can decide to sell your house or other assets
- Bankruptcy is recorded on your credit report
- Your name will permanently appear on the National Personal Insolvency Index (NPII)
- You will not be able to travel overseas without your Trustee’s approval
- You might be restricted from certain professions following bankruptcy such as being an accountant, solicitor or being part of the defence or police force – more information on AFSA’s website
In light of these consequences, considering the alternatives such as payment consolidation, offered free of charge by Way Forward could prove a better alternative. At Way Forward, we take over the negotiations with your creditors and consolidate your repayments into one manageable reoccurring payment.
| Bankruptcy | Formal debt agreement (Part IX) | Informal debt agreement with Way Forward | Informal debt agreements with a debt management company | |
|---|---|---|---|---|
| Eligibility Income threshold | No limitations | $92,683 after tax income Last updated 20/3/2022 | Must have funds left over after meeting basic living expenses | This will be specific to each company |
| Eligibility Asset threshold | No limitations | Less than $247,156 Last updated 20/3/2022 | No limitations | No limitations |
| Eligibility Debt threshold | No limitations | Unsecured debts less than $123,578 Last updated 20/3/2022 | No limitations | Generally greater than $10,000 |
| How long does it last | Bankruptcy lasts for 3 years. If you have property, it can extend up to 5 years. | Debt Agreement lasts for 3 years. If you have property, it can extend up to 5 years. | No time limit. With Way Forward, they tend to last 2-5 years depending on the client’s situation – so you can have more time to pay off your debts if you need it. | No time limit, depends on the provider |
| What type of debts does it cover? | Most unsecured debts Secured debts | Most unsecured debts Secured debts | Most unsecured debts Secured debts | Most unsecured debts Possibly secured debts |
| Ability to retain assets | No, unless it is exempt property i.e., household furniture, tools of trade up to a certain value | Yes, unless the terms of the agreement provide otherwise | Yes | Yes |
| Will it impact my employment? | Certain professions and trades may have employment restrictions that may impact the individual’s ability to work. i.e., accountants, lawyers, company directors, holders of a building licence, electrician Refer to the following link for a more detailed list | Certain professions and trades may have employment restrictions that may impact the individual’s ability to work. i.e., accountants, lawyers, company directors, holders of a building licence, electrician Refer to the following link for a more detailed list | Not if managed appropriately | Not if managed appropriately |
| Ability to travel overseas | Prior consent of Trustee is required | No restriction | No restriction | No restriction |
| Ability to obtain further debt | Must disclose insolvency if incurring debt or obtaining goods and services above a set threshold currently $6,273 | Must disclose insolvency if incurring debt or obtaining goods and services above a set threshold currently $6,273 | No restriction but advised to discuss first with Way Forward or a financial counsellor | No restriction |
| Who offers this option? | Must be a registered trustee with Australian Financial Security Authority (AFSA) | Must be government approved Administrator. Check the Australian Financial Security Authority’s (AFSA) list of registered Debt Agreement Administrators. | Way Forward is currently the only provider in Australia offering a free informal debt agreement to clients to manage their unsecured debts. | No need to be on the AFSA list of approved administrators so many providers exist with big differences in fees, methods and level of support provided. Be careful who you choose to manage your debts. |
| Can you break off the agreement? | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers. Consult your administrator in advance and have a plan before making a choice. | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers. Consult your administrator in advance and have a plan before making a choice. | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers. Consult Way Forward in advance and have a plan before making a choice. | Yes, but it can end any negotiated terms with your creditors – potentially including any interest freezes or debt waivers. Consult your administrator in advance and have a plan before making a choice. |
| What’s the impact on my credit file? | Your name will appear for 5 years on the National Insolvency Index (NPII) and a record of your details is kept on your credit file for up to five years or until the debt agreement is finalised if it takes longer than 5 years. | Your name will appear for 5 years on the National Insolvency Index (NPII) and a record of your details is kept on your credit file for up to five years or until the debt agreement is finalised if it takes longer than 5 years. | There is no mark in the Insolvency Index (NPII). The new negotiated arrangements will show up as a hardship variation and will appear on your credit report for 12 months. If all new payment arrangements are kept, then they will be shown as up to date on your credit file | There is no mark in the Insolvency Index (NPII). The new negotiated arrangements will show up as a hardship variation and will appear on your credit report for 12 months. If all new payment arrangements are kept, then they will be shown as up to date on your credit file |
| Will it affect my ability to obtain future credit | Major lenders do not look favourably to lending to someone who has been bankrupt. This leaves only companies that charge a significantly higher rate. | Major lenders do not look favourably to lending to someone who has been bankrupt. This leaves only companies that charge a significantly higher rate. | So long as all negotiated payments are being met lenders may lend in the first 12 months following the hardship indicator being listed but will seek to understand your circumstances to ensure any new credit does not place you into hardship. | So long as all negotiated payments are being met lenders may lend in the first 12 months following the hardship indicator being listed but will seek to understand your circumstances to ensure any new credit does not place you into hardship. |
| How much does it cost? | There is no statutory filing fee. Typically, approximately 7% of what the client pays goes to government fees and approximately 20% of what the client pays goes to fees to the trustee. | AFSA charges a fee of $200 for lodging a debt agreement proposal. Normally, there are also other fees involved in proposing and managing a debt agreement, which can vastly vary. Approximately 7% of what the client pays goes to government fees and approximately 20% of what the client pays goes to fees to the administrator. The administrator may charge an initial application fee which can vary. The fees will depend on your administrator and situation so consult independent professionals about your circumstance. | $0, no fees involved for the client at any stage. | The sky is the limit with for-profit operators. They will quote you based on your situation. Often includes a standard management fee and a % share of debt collected. |
| Key legal considerations? | You will have a Trustee that will administer your bankruptcy estate. | A Part IV Debt Agreement is a legislated, legal and binding agreement between you and your creditors. It falls under Part 9 of the Bankruptcy Act 1966. | There is nothing legally binding in this arrangement between two parties. | There is nothing legally binding in this arrangement between two parties. |
Can I get out of a Part IV?
Yes, you can get out of a Part IX. If you have a debt agreement and would like to apply for bankruptcy, the first step is to contact your Administrator. The debt agreement must end before you can apply but make sure you understand all the consequences before going ahead.
You can choose to terminate your agreement, but your creditors must agree.
Also keep in mind that if you do this, your creditors are free to add any fees and interest and they can then recommence collection activities. It is a good idea to have a plan for moving forward before making the choice to terminate your Part IX.
Should I get out of a Part IX?
This depends on your situation and what options you have available once you terminate. You should seek professional, independent advice about the consequences of terminating your Part IX and how you will manage your debts once your Part IX has been terminated.
What questions should I be asking myself if I want to get out of a Part IX?
If you’re considering ending a Part IX agreement, some questions to ask yourself are:
- Why do I want to get out of the Part IX?
- Can I afford to pay my Part IX?
- Have I considered a variation of my Part IX?
- How will I manage my debts once the Part IX has been terminated?
Who can help me with a Part IX?
Way Forward doesn’t manage Part IX agreements, we offer an alternative to a Part IX by offering an informal debt agreement.
Head to the AFSA website for a list of practicing registered debt agreement administrators.
Way Forward helps clients in three simple steps:
Step 1: We evaluate your circumstance and financial situation.
Step 2: We take over negotiations with creditors and act your behalf.
Step 3: We put together a manageable repayment plan and budget. You make one reoccurring payment to us that we then distribute to all creditors, 100% of which goes towards reducing the debt.
If you’re stuck, get help early. Pick up the phone and ask for support.
