Hire purchases and mortgages? What happens if payments are affected by COVID 19?

Hardship is becoming a fact of life in the era of Covid-19. Lost income is making meeting debt obligations more difficult for many New Zealanders. One thing that might make debt management easier, however, is the fact that “consumer credit contracts” can be amended where hardship prevents repayment as agreed.

To qualify as a consumer credit contract, the debtor has to be a natural person (i.e. not a trust, partnership or body corporate). Furthermore, the credit provided has to have been intended to be used primarily for personal, domestic or household purposes. This could be anything from a hire purchase arrangement to a residential mortgage.

The Consumer Contracts and Consumer Finance Act 2003 provides that a person who is unable to meet their obligations under such a contract because of a reasonable cause such as illness or loss of employment may, if they reasonably expect to be able to meet amended terms, apply to the creditor to make that change.

If you are experiencing hardship due to Covid-19 and wish to have a consumer credit contract changed, you must apply to your lender with a reasonable new plan for meeting your debt obligations in full. Your application should:

– Be made as soon as you realise you will not be able to pay what is due;

– Provide as much information about the circumstances of your hardship as you can; and

– Make a fair and reasonable proposal for altering the contract terms (for example, extending the term and reducing the repayment amounts or postponing payment due dates) he payment due dates, or both. The proposal must be fair and reasonable to both parties.

What if you are a creditor and you receive a hardship application?

In this case, you need to acknowledge receipt to the the debtor within five working days of the request. If you require further information, you must let the debtor know within ten working days. You must provide a written response to the debtor either accepting or declining their application within twenty working days of the original application or ten working days after receiving additional information requested from the debtor (whichever is later). You are under a legal obligation to act fairly and reasonably and you should only decline a hardship application if you have genuine reasons for doing so.

If you decline the application, you must explain your reasons in writing.

During this difficult time, there will be more financial hardship about. If both creditors and debtors understand their rights and obligations then, in many cases, reasonable accommodations will be able to be found.