Keeping up with financial obligations is a burden that millions of Australians manage each and every day. Whether it is credit card debt, personal loans or mortgage loans, most individuals will need to acquire some level of credit or go into debt to be able to finance their livelihood. However, when financial burdens become too much due to unforeseeable events, maintaining debt repayments to a number of different creditors can quickly become difficult. Fortunately for borrowers, current legislation provides some degree of assistance to those who have come under financial hardship and are unable to meet their repayment obligations easily.
What is Financial Hardship?
It is defined as a circumstance that leaves an individual or family in a situation where they are unable to meet their financial obligations with ease. In most cases, a financial hardship can be caused by a change in relationship status, such as a divorce, or a loss of income due to job-loss. In other situations, it may be the result of a reduction in hours worked each week or short-term disability or illness. A substantial increase in monthly expenses may also lead to a hardship. Each of these scenarios create a situation where an individual’s income is not high enough to meet his or her debt obligations in the short-term, but there is an assumption that the circumstances are temporary.
When an individual is experiencing financial hardship due to one of the changes in circumstances listed above, it is necessary to contact each creditor in order to come to a short-term solution so as not to default on repayment. Creditors are required by law to work with individuals who are categorized as having hardship to come up with a new repayment agreement that accurately reflects the borrower’s current financial circumstances. If income has significantly dropped, for instance, a borrower can reach out to his or her creditor and work out a repayment plan that only requires interest payments for a short period of time. Similarly, creditors may be willing to freeze interest for the duration of the hardship so that the total debt repayments are not far above what they would have been in the first place. Borrowers are responsible to inform their creditors what they are able to repay given their new financial circumstances, and creditors are then required to compromise on repayment terms.
Although financial hardship is an unforeseeable event, it is possible to work through a drastic change in financial circumstances and avoid more harsh remedies like bankruptcy or debt agreements. Taking the time to understand what your financial standing is and the amount of money that can be used for repayment of debts during a hardship is crucial to coming out of the situation successfully.