Last updated 14 January 2019
A borrower may default for a number of reasons including:
- financial over-commitment
- changes in circumstances (e.g. job loss)
- the unfairness of terms of the credit contract.
Many of the possible options for defaulting borrowers below are not available to unregulated loans (loans not covered by the National Credit Code (Credit Code)).
Once a borrower is in default (e.g. behind in their repayments or has not comprehensively insured a security), the lender must deliver a default notice to the borrower describing the default and give the borrower 30 days to fix the default (e.g. paying the arrears amount or insuring the security).
The lender cannot enforce the contract (including taking repossession) until the notice is given and 30 days have passed (s 88 Credit Code). If the lender cannot find the borrower or the secured goods are no longer at the nominated address, then the lender can enforce the contract without giving notice.
The lender is unable to take action to repossess goods or take legal action to repossess goods or property until 30 days have passed since they sent or delivered a default notice that specified the loan default, unless the lender:
- believes on reasonable grounds that there was fraud on the part of the borrower in making the contract
- cannot locate the borrower despite reasonable attempts
- believes on reasonable grounds that the goods are likely to be removed or damaged.
The lender can send a default notice if the borrower is one day overdue with their payment.
If the lender refuses to postpone enforcement proceedings, the borrower can ask a court for a variation of the loan. A complaint to the Australian Financial Complaints Authority can halt the repossession while a hardship variation proposal is considered.