Credit and Debt

Credit and Debt

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Your client's options

The options listed below are relevant to secured debts (including mortgages and other loans secured by a car or house).  Many of these are discussed in more detail under What are Your Client's Options.  

  • Hardship variation - your client can apply for a hardship variation under section 72 of the Code. If the creditor does not grant this variation, you can apply to the appropriate External Dispute Resolution scheme or to the court under section 74 of the Code (hardship variation ordered by the court). You should also make an application under section 96 of the Code for an order of postponement by the court. The provisions will only apply if the original amount borrowed is less than $500,000 (for loans entered into on or after 1 July 2010). For loans entered into pre-1 July 2010, a floating threshold applies which currently stands at $421, 520.
  • Dispute resolution - lodging a dispute with the relevant ombudsman will put a hold on further enforcement while the dispute is being resolved. Under the National Credit Act, it is mandatory for credit providers to be a member of an ASIC-approved external dispute resolution scheme. If court proceedings have gone too far, EDR will not be available.
  • Negotiation - this may be an option even once the creditor has obtained a court order, particularly if the creditor has not previously been made aware of your client's hardship (refer to the Case Study 5). If you intend to negotiate on the client's behalf, you should immediately make an application under section 94 of the Code (application to creditor for postponement of enforcement pending negotiation).
  • Early release of superannuation - it may be possible for your client to access their superannuation early where they are at risk of losing their home. This should only be done in consultation with a financial counsellor as it may not be in your client's best interests to diminish their superannuation if they are only going to fall into default under their home loan in the future. For more information about this option go to www.apra.gov.au
  • Mortgage Relief Scheme - as a short term, practical measure, the client may be able to apply to the Victorian State Government for an interest-free loan under the Mortgage Relief Scheme, which is managed through the Office of Housing. You should book your client into a financial counsellor for advice on whether the scheme is appropriate for them. Eligibility for mortgage relief depends on:
    • the original loan being less than approximately $349,000;
    • the original loan having been spent entirely on the purchase or construction of the home; and
    • the client's capacity to resume normal payments when he/she stops receiving assistance under the scheme.
  • Defending the claim - your client may have grounds to defend a Writ filed in the Supreme Court or the County Court on the basis that the Default Notice did not comply with the Code or was not properly served (also see non-compliance regarding default and repossession). One or more of the options set out in Defending a Claim may also be available to your client.

When dealing with secured loans and mortgages, keep in mind that prolonging the process and increasing the enforcement costs may put the client in a worse position. You should confirm with the client whether they are going to be able to meet their loan obligations on an ongoing basis. Your client will need to consider whether they should sell the property and repay the loan rather than getting further into debt. A financial counsellor is best placed to provide your client with this advice.