Making a hardship application for financial problems caused by Covid

While New Zealanders hang in there, staying safe in their lockdown bubbles, many of us are worrying about paying the bills because our income has changed.

If this is you, the best thing you can do is to start making a plan, now. The Debtfix Crew are here to help and making a hardship application is an option we can explore.

A hardship application can be used to change debt agreements, such as a personal loan, mortgage, credit card or other loans. This debt solution is useful for people who have a significant and unforeseeable financial hardship they genuinely couldn’t see coming, like losing your job due to Covid lockdowns or other reasons.

If you became seriously unwell or injured, or your partner died and this impacts on your financial situation you may also be eligible for a hardship application. Also, if your relationship breaks up, you could be eligible for hardship.

You must provide evidence of your unexpected change and the lender does not have to accept your application. The Debtfix Crew can work with you to determine if hardship is the best option for you and ensure your application is presented in detail and professionally.

Make a hardship application quickly

There are time limits for hardship applications so if you think you are going to miss or default on payments, you need to move quickly.

Hardship applications cannot be made when the borrower has:

• Missed debt repayments for two months or more

• Missed loan repayments for two weeks or more after receiving a warning notice about repossessing an item or Property Law Act notice (notice of defaulting on a mortgage).

Evidence that the borrower could afford the debt before they experienced unforeseen circumstances is also required. The borrow must have made four consecutive debt repayments by the due dates, which would indicate they could manage the debt.

Hardship applications will not be accepted when it is evident the borrower could reasonably anticipate the situation that changed their financial position when they entered into the loan agreement. For example, if you are self-employed and your business won’t survive during Covid lockdowns, but you buy a TV on an interest free online deal that you can’t afford – you are unlikely to have a hardship application approved.

Have you made hardship applications before?

Borrowers can only make a hardship application for the same reason, once within a four-month period, unless the lender agrees to consider another application. If the borrower catches up on their debt repayments, they can make another hardship application.

Again, it’s important to understand that the lender must consider your hardship application, but they do not have to approve it.

What happens when a hardship application is approved?

When applying for hardship, you must provide details of the changes that you want made to the contract. 

Changes to your contract may include a payment holiday, a longer period to pay, or freezing of interest and penalties. You cannot request changes that you don’t really need to meet debt repayments, and the changes must be fair to the borrower and the lender.

The lender cannot increase interest rates when a hardship application is approved, and they must treat borrowers in a reasonable and ethical manner.

Will a hardship application increase my total debt?

While a hardship application will provide temporary relief, it is likely to increase the total amount owing on a loan in the long run.

When a hardship application is approved the lender can charge a reasonable fee that realistically reflects their costs when documenting changes to a loan agreement. The lender must disclose the fee to the borrower, and it must be included in the contract.

Can goods be repossessed when a hardship application is being reviewed or approved?

If you have a loan that is secured against assets, such as a car or television, the lender cannot repossess that item while they are reviewing the hardship application, or it is approved. The only exception to this is when the lender is considering your application and the items are at risk however, the lender cannot sell the goods or take further action until the application is decided.

If you think a hardship application could be appropriate for you, please contact Debtfix as soon as possible.

The Crew is here to help you.