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Handling hard times

Act quickly

Hard times hit us all, often when we least expect it. And whether it’s losing your job, going through a divorce, or the loss of a loved one, it can be a challenging time – both emotionally and financially. But by following some straightforward strategies, it is possible to manage a difficult situation and get back on top.

The key to maintaining financial control - even when times are tough, is to act quickly rather than taking a wait-and-see approach. And remember, help is available if you need it – you’re not alone.

If you believe you will have difficulty paying your account, you should contact your bank as soon as possible. You can apply for financial assistance (under the Consumer Credit Code and Code of Banking Practice). If you are not satisfied with the decision relating to your application, you can apply directly to your State, Territory or local tribunal to change the terms of your contract. Contact your Government Consumer Agency or get legal advice on how to do this. Financial counsellors may also be able to help you.

Losing your job

Losing a job is something that can happen to anyone. In fact, around 200,000 Australians are retrenched or made redundant each year. But by taking control of your finances, you can get on top of a challenging situation.

What you can expect to receive

In addition to any holiday pay or long service leave entitlements, most redundancy packages range from two to four weeks of pay for every year of service.

What you decide to do with the money – from cashing it in to rolling it over into your superannuation, will depend on your age, income and plans for the future. The tax treatment of redundancy payouts is complex though, so it pays to get professional advice before you make a decision.

Set a new course

Draft a new household budget that takes into account your reduced income. You may need to adjust your spending, so look at ways to cut back on non-essentials.

Contact Centrelink on 132850 or visit www.centrelink.gov.au to see what government entitlements you may be eligible for. Do this as early as possible, as it can take around four weeks to receive any benefits.

Contact your lenders

Lenders realise that losing your job is something that can happen to anyone, and they will often re-negotiate a new repayment plan rather than lose your debt. Make early contact with your credit providers to negotiate a workable arrangement. But don’t miss repayments – contact your lenders before they contact you.

Separation and divorce

Going through separation and divorce can be a tough time. But it’s estimated that as many as 40% of all marriages will end in divorce, making it a reality of modern life. At a time when emotions may be running high, you still need to organise your financial life – reaching agreement with your former partner about the division of your shared assets, and establishing your own credit identity.

A divorce doesn’t necessarily affect your agreement with existing credit providers. You are still responsible for paying an individual account if it is in your name. It is when you have debts in joint names that you need to take care. You may have separated physically but you are still jointly and perhaps even individually responsible for paying off shared debt. This means that even if your former spouse or partner fails to make repayments, you can still be called upon to make the repayments yourself.

Separating credit

A good credit bureau file is important in establishing your ability to borrow money in the future. So, it is worth protecting your credit bureau file to aid in becoming an independent credit customer.

The following steps can give you a guide to achieving this.

1. List all credit accounts

List all loan and credit card balances, setting out which accounts are in joint names, when the payments are due and the amounts that are outstanding.

2. Keep up the repayments

Even if you believe your former spouse should contribute to the repayments, it is vital that you keep up the repayments otherwise you could tarnish your own credit bureau file.

3. Contact your credit providers

Let your credit providers know that you and your spouse have separated. Reputable credit providers will often work with you to reorganise your repayments. To be on the safe side, you should always destroy any joint cards or additional cards that have been issued for your account, or request that they be cancelled.

4. Separate your joint credit

Credit providers are not required to convert a joint credit account to an individual account, but it is a good idea to approach your credit providers and request that your former spouse be removed as an authorised user of your account. This is especially the case if your former spouse can independently use the credit facility.

5. Establish independent credit

When you first separate it may be difficult to obtain credit either because of your lower income, or because you may not have an independent credit bureau file. You may also find that your credit limits are lower. Discuss your situation with credit providers, but bear in mind that by maintaining a good credit bureau file now, the situation should improve over time.

6. Review your entitlements

After separation, you may be entitled to social security payments like ‘Parenting Payment’ or possibly for additional benefits as a sole parent. Contact Centrelink on 13 6150 to see which benefits you may be eligible for.

Relationship debt

Relationship debt occurs when one partner in a relationship agrees to act as guarantor for the debts of the other partner or worse still, borrows money on behalf of the other partner. Agreeing to be a guarantor is a serious step, and not one you should undertake lightly. It means that lenders can ask you to repay your partner’s outstanding debt - in full, if he or she fails to keep up the repayments.

If you are approached by your spouse, de facto partner or even adult children, to sign documents from a lender – and you are not the primary borrower, make sure that you read and understand what you are signing before you put your signature to it.

Loss of a loved one

Losing a loved one can be an overwhelming experience, and dealing with your emotions while you settle that person’s estate can make the job even harder.

Not all of us own a lot of property, but most adults have some affairs that need to be finalised. A person’s ‘estate’ refers to the personal assets they leave behind. In addition to things like their family home, cars and jewellery, your estate can also include financial assets like savings in the bank, superannuation and other investments.

Here are some of the things you may need to do to consider when you close an estate.

Locate the most recent will

A will should specify how an estate is to be divided, as well as nominating an ‘executor’. This is the person responsible for administering the estate.

Collect all documents

As a guide, you will need to gather the following items:

Keep a written record of these items and file them safely. Even records that may appear out of date may be useful. Some life insurance policies for example, may still be active even if the premiums haven’t been paid recently.

Make copies of legal certificates

You will need several copies of death certificates as they may be required by organisations like Centrelink and life insurance companies.

Get help if you need it

Closing an estate of any size can require time and effort. If the affairs are complex, or if you’ve been named the executor of an estate, you may need the help of a solicitor or accountant depending on the issues at hand. You can also seek help from the Public Trustee.

Accessing financial hardship relief

There are times in life when we encounter unexpected hardship through illness or the loss of our job. At these times, it can become extremely difficult to keep up with debt repayments, even with the best efforts.

When this happens, you should be able to access your lender’s hardship provisions – particularly if the amount you owe is less than $500,000.

Get in touch with your lender and explain your circumstances. Some of the options that may be offered include suspension of repayments for a certain period, making interest only repayments for a fixed time or reducing your overall repayments.

If your lender won’t agree to a reasonable request for assistance, contact the Financial Ombudsman Service http://www.fos.org.au, which has the power to ask lenders to change the terms of your credit contract.

Is bankruptcy an option?

Each year around 20,000 ordinary Australians are declared bankrupt. Most are 25 to 44 year olds who either took on too much credit, or ran into unexpected problems such as losing their job or falling ill. And the debts that trigger bankruptcy are often quite low. In fact, half of all consumer bankruptcies are for debts of less than $20,000.

Bankruptcy relieves the immediate pressure to pay your debts, so it may seem like a quick solution to credit problems. But it can affect the way you live for years to come. Although a bankrupt is usually discharged (no longer a bankrupt) after three years, your credit bureau file will show details of the bankruptcy for seven years, making it difficult to get credit at a later stage.

There are less drastic steps to take before declaring yourself bankrupt, and it’s worth considering these alternatives first.

Speak to credit providers first

If you find yourself facing financial difficulties, get in touch with your credit providers before a payment is missed, to organise a repayment plan that you can manage. If you feel uncomfortable about approaching a credit provider yourself, contact a financial counselling organisation to help with the negotiations.

Consider a formal Debt Agreement

‘Debt agreements’ are an alternative to bankruptcy for low to middle income earners with relatively small debts. Using the help of the Insolvency and Trustees Service Australia (ITSA), you make a collective offer to your credit providers, setting out a suggested repayment plan that meets your ability to pay.

What happens when you are declared bankrupt?

You can either declare yourself bankrupt or be declared bankrupt by a credit provider. In either case, bankruptcy may not clear all your debts. You will still be responsible for certain debts including outstanding child support.

When you are declared bankrupt, a bankruptcy trustee will take over your financial affairs. This can include selling your assets and distributing the proceeds among your credit providers. And if your after-tax income exceeds a certain limit, half of every dollar you earn over this amount can go towards your credit providers.

Even when your bankruptcy is discharged after three years, it can still affect your ability to get credit. Your bankruptcy may be removed from your credit bureau file after seven years, but it is recorded permanently on the publicly accessible ‘National Personal Insolvency Index’, a list of all bankrupts maintained by ITSA.

Who to turn to for help

If you find yourself struggling financially, it can be a good idea to get some professional help. There are a number of free, or low cost, financial counselling services available that can help you get back on top.

The Financial Counsellors’ Association can provide a list of contacts in each state.

The following organisations can also help:

QLD - Credit and Debt Hotline – 1800 808 488

ACT - Care Financial Counselling Service (02) 6257 1788

NSW – Credit and Debt Hotline 1800 808 488

VIC - Financial and Consumer Rights Council (03) 9663 2000

WA - Consumer Credit Legal Service (08) 9221 7066

SA - Community Legal Service (08) 8362 1199

TAS - Anglicare Financial Counselling Service (03) 6234 3510

NT – Anglicare NT Financial Counselling Service (08) 8985 0000