Hardship
When you are having trouble making repayments.
Hardship: the basics
If you are struggling to meet your payments, tell the creditor about your situation as soon as possible. Creditors want to be repaid and are usually willing to help you meet your
obligations. If you don’t contact the creditor and end up missing payments, you may be charged penalty interest and default fees. If your goods (or security) are repossessed, you will
also have to pay repossession fees and are likely to end up owing the creditor money even after the items are sold.
What if I have been made redundant or am ill?
If you are struggling to make payments because you have lost your job or you are ill, check your credit contract to see whether you have payment protection insurance. If you have this type of insurance, your payments may be covered.
You shouldread your policy and contact the insurance company immediately to find out how to make a claim. You may have to provide some proof of your situation (for example,
a doctor’s certificate or a letter from your employer).
If there is any disagreement about whether you are covered by the insurance policy, you may need to get legal help from a community law centre, or the Insurance and Savings Ombudsman (ISO) if your insurance company is a member.
Visit the Insurance and Savings Ombudsman website, or call 0800 888 202.
Making a hardship application
The law says that if you have experienced ‘unforeseen hardship’, you can ask the creditor to change the terms of your credit contract.
Hardship covers things like illness or injury, losing your job or a relationship breakdown. You can only apply for this if you couldn’t have expected the hardship situation you are in at
the time you entered the contract (for example you have been made redundant six months after you took out the loan).
You also need to be up-to-date with your payments and, in the case of credit card contracts, within your credit limit when you apply for a change to your contract because of hardship.
You can also apply if you fall behind in your payments or exceed your credit limit but manage to get up to date again.
What you can ask for
If you can show that you have suffered unforeseen hardship, then you can ask to:
- spread the payments over a longer term – this will reduce the amount of each payment to a manageable level
- postpone your payments for a period of time – a payment holiday gives you time to sort out your situation
- a combination of these two options.
All of these options mean you will pay more in the long term because you are borrowing over a longer period. Any changes to payments must be agreed, in writing, by you and the creditor. A written copy of the new arrangement must be sent to you. You should not be disadvantaged by any delays in the creditor processing your application.
The creditor may charge you an application fee. However, this fee must be reasonable and relate to the actual costs they incurred.
If you think the creditor has unfairly declined your hardship application you can go to the Disputes Tribunal or Court to have it changed.
See here for more information on the Disputes Tribunal.
Should I re-finance the loan?
You may be able re-finance your loan and arrange lower repayments. This option usually means you will end up paying extra fees and interest. Remember that you do not have to refinance with the same creditor.
Shop around and carefully compare the different interest rates and fees being charged by banks and other creditors.
You will also need to find out how much it will cost to break your current credit contract.
Can I sell the secured goods to help pay off the debt?
You can’t sell secured goods without the creditor’s permission. If you do, you will breach your loan agreement and may commit a criminal offence. You can get someone else to take over the contract such as a guarantor or friend if you are up-to-date with your payments. This is called an assignment.
The creditor can only refuse an assignment request if it is unreasonable (for example your friend has a bad credit record).
What if I want to end the loan and return the goods?
You can let the creditor repossess the goods, or they may agree to let you return them yourself – this is called ‘voluntary return’. A voluntary return means you can avoid paying
some of the repossession fees by returning the goods yourself. You may still have to pay for storage and the creditor’s costs in preparing the goods for re-sale e.g. repairs,
cleaning, valuation, auction fees.
A voluntary return may also reduce the amount of default interest and fees because you don’t have to wait for a repossession agent to collect the goods.
After you voluntarily return goods you must be given a post-possession notice and the creditor must wait 15 days before they sell the goods. If the creditor does not send the
notice, or wait 15 days, you will only have to pay the balance of the advance under your credit contract (the advance is the amount of money you borrowed).
You no longer have to pay either the interest, sale costs, or other fees. The exceptions are if the creditor, rather than waiting to see how much the goods sell for, just agrees to value them at more than 80% of their cash price or if you sign a document waiving your rights and take legal advice before signing it. In this case, you must be given a ‘statement of account after sale’ that includes the creditors valuation of the goods (instead of the sale price and associated costs) and the final balance after this has been deducted.
Some people think that just because they have taken goods back themselves they will not have to pay anything else, but that’s not the case, you will still have to pay whatever is left after the creditor sells the goods.
Repossession and voluntary return do not usually result in your debt being fully repaid.
What if I have too much debt and don’t think I can repay my loans?
If you think you have overcommitted yourself and are unable to repay your debts in the foreseeable future, you should contact a budget advice service or the Insolvency and Trustee Service immediately to discuss your options.
Options include a Summary Instalment Order, a No Asset Procedure, or Bankruptcy. For an explanation of these processes, contact the Insolvency and Trustee Service on 0508 467658.
