Finding you have debt you can no longer pay is an awful feeling. You may be making your debt payments each month but then not having enough money to pay rent, mortgage payments or buy food. In other words, paying your debts imposes unreasonable hardship on you.

Most financial institutions have a policy on minimizing the hardship that their customers or clients might experience when trying to make repayments. Because these are only internal guidelines, they don’t create any legal rights for you. Nonetheless, if you feel that paying your accounts is causing you undue hardship, ask your creditors how to apply for hardship assistance from them.

If your initial hardship application is rejected you might consider a formal approach by activating your consumer right to have your circumstances properly considered against criteria laid down in law rather than just bank policy.

The Consumer Credit Code[7] gives you the Right to ask a creditor to vary the terms of your credit contract to permit payment over a longer period of time; to defer payment for an agreed period of time; or to combine both to create the solution you need. The main point is that what ever the change is, it must enable you to pay your account while alleviating your hardship.

To be eligible you must demonstrate that you are experiencing hardship and that this is caused by unemployment, ill health or some other equally good reason. For example, a significant loss of hours of work, or losing the income of a partner who ordinarily contributes to living costs could be good reasons.

Your application must be in writing and has to be argued on each of the criteria required under the Code. A creditor receiving your application must consider it and advise you of their decision. If you are not happy with the decision that is made you have the right to refer the matter to a Court for consideration. Importantly, while an application is being considered, the creditor should not be taking debt collection action.

2. Make a Payment Arrangement

If you do not qualify for hardship assistance and your debt is overdue, perhaps already in the hands of a debt collector, you can ask for a Payment Arrangement to allow you time to bring your account into line or pay it off.

Short term payment hoidays of up to three months can be requested over the phone with the major creditors. It is always advisable to keep a note of when you made the arrangement and exactly what the arrangement is.

Long term payment arrangements i.e. longer than three months, require a detailed written application. Most creditors have a specific application form for you to complete. Otherwise use our template.

Each creditor is only interested in their debt and not your overall position. Consequently, you have to send a separate request to each creditor. You may then end up with a number of different arrangements, which can be easily managed using our Automated Creditor Payment System.[8]

As each creditor has a different motivation, it is possible that some will reach agreement with you and others may not. If this happens you can either keep juggling payments or upgrade to a formal debt agreement to try to bind all of your creditors to one payment plan.

3. Offer a cash settlement

Creditors do consider cash offers to settle overdue accounts for less than the full amount owing. Offers of 50% to 75% of the debt owed are often accepted providing it is clear that this is the best you can do and the money is made available quickly.

Make a written offer setting out the facts including a summary of your assets, liabilities, income and expenditure. State exactly how much you intend to pay and when. Make payment conditional on first receiving written acceptance of your offer. Their letter of acceptance must clearly say that your payment will fully discharge your debt. Use our Cash Settlement Template[9] to help you.

4.Ask the Court for an Instalment Payment Order

Creditors may take legal action to try to recover their debt. The legal process is not one sided though. At Court you can make an application to be allowed to pay your debt by installments. The exact process does vary in different Courts so check with the Registry Office at the relevant Court for guidance.

When a Court makes an Order for you to pay by installments, the creditor is bound by that Order and cannot take further action against you while you keep to the payment instalment Order.

5. Propose a Debt Agreement or Personal Insolvency Agreement

If you want to try to roll all of your debt payments under one arrangement, there are just two options: The Part IX (Part Nine) Debt Agreement; and The Part X (Part 10) Personal Insolvency Agreement. Both are found in the Bankruptcy Act under Part IX and Part X respectively.

A Debt Agreement is a way for you and your creditors to reach agreement on how to settle your debts. It works this way. You make your offer to creditors by registering a proposal for a debt agreement with the government bankruptcy service ITSA. ITSA then writes to your creditors recommending they accept your offer (or not), and conducting a postal ballot. The outcome of the vote to accept or reject your offer is decided by a simple majority. The process is more complex for a Personal Insolvency Agreement and requires a meeting of creditors to be held to decide the matter.

You can easily manage your own Debt Agreement using our Create Your Own Debt Agreement pack.[10] . You will save thousands of dollars that you can either keep for yourself, or use to top up your debt agreement proposal to make it more attractive.

6.Post-bankruptcy settlement

Creditors are a suspicious lot. Often they are unwilling accept your payment offers simply because they suspect you can do better. In bankruptcy your Trustee reports to your creditors about how much will bee paid to them. This removes their doubts and emotions cool. Then is the time to make an offer to pay creditors a little more than they expect from the bankruptcy. When your offer is accepted, your bankruptcy is annulled[11].

7. The 'B' word

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Learn about your debt solution options

1. Financial hardship assistance