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If a borrower cannot pay

Information about the way that people can get help if they get into financial difficulties.

If a borrower is having financial difficulties, for example because of illness or unemployment, they may ask their lender to vary the terms of their contract. This is called a hardship application. The procedure for applying for a hardship application depend on when the contract was entered into.

Contracts made before 1 March 2013

The borrower may write to the lender asking for them to:

  • extend the length of the contract and to reduce the amount of each payment, and/or
  • postpone repayments for a particular time.

The letter should include the reasons for the hardship, for example if the borrower has lost their job.

They will also need to say how they will be able to comply with the new terms.

Not all contracts are covered

Applications can be made for contracts of up to $500,000 if the contract was made after 30 June 2010. Hardship provisions for contracts made before this date have different maximum values. The maximum value depends on the year the contract was made.

For a list of maximum contract values where hardship applications can be made see ASIC—Money smart—Hardship threshold(opens in a new window).

Lender must respond to the hardship application

Under the code, the lender has to give a written response to a hardship application within 21 days of receiving the application. They must say whether or not they agree to the request. If they do not agree to the application they have to give the following information to the applicant:

  • the name of the approved (external) dispute resolution scheme
  • the rights of the applicant under the scheme
  • reasons that they will not accept the application.

If the lender does not comply they may be fined a criminal penalty of up to 30 penalty units (see below for the value of one penalty unit).

The lender is not able to raise the annual percentage rate as a condition of agreeing to a hardship application.

Note: If the matter is urgent, for example, if the borrower is being threatened with legal action, they could also lodge a complaint with a dispute resolution service at the same time as when they write to the lender.

If the lender refuses the hardship application

If the lender refuses to vary the contract terms after a hardship application has been made, they have to give reasons for this. The borrower may then ask to speak with the creditor's internal complaints section to ask that this decision be reviewed.

If still not satisfied with the outcome, the borrower can lodge a dispute with Australian Financial Complaint Authority (AFCA).

Once a dispute is lodged, all enforcement action must be put on hold until AFCA have investigated the dispute.

See AFCA—Make a complaint(opens in a new window).

The borrower should also get help from a financial counsellor.

To find a financial counsellor, see National Debt Helpline(opens in a new window).

Borrower may apply to court

If the external resolution does not provide a solution the applicant may apply to court to have the contract varied.

The court will may order that the contract be changed in any way it thinks is appropriate. The court may also decide not to amend the contract.

See cl. 74—National Consumer Credit Protection Act 2009—Schedule 1—National Credit Code(opens in a new window).

Contracts made after 28 February 2013

There is no upper limit on the amount borrowed after this date. A borrower who is having trouble meeting their repayments may apply under the financial hardship provisions, regardless of the amount borrowed.

If a borrower is unable to meet their financial obligations under a contract made after this date they must notify the lender. The borrower should let the lender know in writing, even though this is not a legal requirement. They should also keep a copy. This way, there is a record.

Lenders must not begin enforcement action for the debt until they respond to an application for hardship. If the lender is threatening to take legal action against the borrower, the borrower should lodge a complaint with the relevant dispute resolution service at the same time that they apply for hardship.

See cll. 72, 89A—National Consumer Credit Protection Act 2009—Schedule 1—National Credit Code(opens in a new window).

Request for more information

The lender may ask the borrower to provide more details about:

  • if the borrower is able to meet their financial obligations under the credit contract
  • how to change the contract if the borrower is unable to meet their financial obligations.

The lender has 21 days to do this after they get a hardship application.

If a borrower gets this request for more information they must respond within 21 days of the request.

See cl. 72(5)—National Consumer Credit Protection Act 2009—Schedule 1—National Credit Code(opens in a new window).

Response from the lender

The lender has between 21 and 28 days to decide if they will:

  • agree to change the credit contract
  • refuse to change the contract (giving the name of the dispute resolution scheme and reasons for refusal)
  • debtor's rights under the hardship scheme

See cl. 72(4)—National Consumer Credit Protection Act 2009—Schedule 1—National Credit Code(opens in a new window).

If the lender refuses hardship application

If the lender refuses the application or if they do not respond to the hardship application within the time limits, the borrower can apply to the relevant dispute resolution scheme.

The lender cannot begin court action until 2 weeks have elapsed from the date of their notice of rejection.

The borrower can also apply to court for an order that the contract be changed.

If the borrower falls behind in payments

The lender must issue a special notice the first time that a borrower defaults on their payment under a direct debit system. This special notice must be made within 10 days of the default.

These notices must state:

  • how much time the person has to make up the money owed
  • the date that the lender will begin enforcement proceedings to recover the debt
  • information about their approved dispute settlement scheme (as required by the regulations)
  • warning about the potential for reporting their default which will affect the borrower's credit rating if the debt remains owing for 60 days or more.

The information that must be provided is set out in the prescribed Form 12.

See Forms.

Enforcement of the debt by a lender

A lender must not take action in court to enforce a credit contract or mortgage unless:

  • the borrower is in default under the credit contract
  • a default notice has been given to the borrower and any guarantor
  • 30-days have passed since the default notice was given
  • the default has not been remedied within that 30-day period.


The lender need not wait until to enforce a debt if:

  • they reasonably believe that the borrower entered the contract fraudulently
  • they have not been able to locate the borrower after making reasonable attempts
  • the court authorised the lender to begin enforcement proceedings
  • the lender believes that urgent action is necessary to protect mortgaged property.

More information


National Consumer Credit Protection Act 2009—Schedule 1—National Credit Code

  • cl. 72—changes on the grounds of hardship
  • cl. 74—changes by court
  • cl. 87—the warning notice that must be sent the first time the borrower defaults
  • cl. 88—steps that a creditor must take before the can enforce the credit contract or mortgage
  • cl. 88(3)—information that has to be included in a default notice
  • cl. 89A—effect of hardship notice on enforcement

See National Consumer Credit Protection Act 2009—Schedule 1—National Credit Code(opens in a new window).

National Debt Helpline

This not-for-profit service helps people tackle their debt problems. The lines are staffed by professional financial counsellors. The website has information to support people with particular debt problems, such as: electricity, gas or water, phone or internet bills, housing or cars.

The helpline operates from 9.30 until 4.30 Monday to Friday.

See National Debt Helpline(opens in a new window).

Australian Securities and Investments Commission (ASIC)

See ASIC—Money smart—Hardship threshold(opens in a new window).

Australian Financial Complaint Authority (AFCA)

This service can help to resolve disputes between consumers (including small businesses) and financial service providers. This service is free to consumers.


Value of one Commonwealth penalty unit

The penalty scales under Commonwealth law are different to those under Victorian law. Commonwealth penalty scales are explained in the Crimes Act 1914. The current rate is $222.

This only applies to offences committed after 30 June 2020.


This amount is indexed

This amount is indexed and so increases from time to time to retain the real value of the penalty. Immediately before 1 July 2020, the penalty amount was $210.