PrintEmail

The thoughts of all New Zealanders are with the people of Christchurch at this difficult time.  Those affected will need all Kiwis to help them as they deal with what must be an overwhelming range of issues.  One issue many will face is difficulty in keeping up with mortgage and other loan repayments.  The Credit Contracts and Consumer Finance Act 2003 (“Act”) contains ‘unforeseen hardship’ provisions which may apply to provide some relief.

Unforeseen hardship provisions

These provisions are designed to help borrowers who have been affected by unexpected circumstances, such as an earthquake (and other possible circumstances include for example illness, injury, loss of employment or the end of a relationship), to help them to service their loans in a manner that is still fair and reasonable for both sides.

Borrowers who meet the requirements in the Act can apply for a change to their loan agreements.

Prerequisite to applying for a change to loan agreement

To be able to apply for a change to a loan agreement the borrower:

• must have been affected by the unexpected circumstances; and
• must reasonably expect to be able to meet their loan obligations if the terms of their loan agreement were changed in the manner requested; and
• must not be in default in a payment or exceeded any credit limit.

Changes that may be requested

If the borrower meets the requirements in the Act they can apply for a change to their loan agreement in one of the following ways:

• extending the term and reducing the amount of each payment;
• postponing the dates on which payments are due; or
• extending the term of the contract and postponing the dates on which payment are due.

The changes requested must not be more extensive than necessary to enable the borrower to meet their obligations and must be fair and reasonable to both sides.

The lender must consider the requested changes and if the borrower is unhappy with the response, the borrower can apply to the court for an order to change the loan agreement.

Changes agreed outside of the Act

The Act sets out the minimum obligations of the parties in relation to considering changes to loan agreements. Many banks though have graciously offered relief to their customers in a variety of ways without waiting for applications for changes and also going beyond what is required by the Act.

Summary

The Christchurch Earthquake will have a long lasting effect on Christchurch and New Zealand. Christchurch businesses and consumers will be faced with many legal and other issues as they struggle to recover. It is important for them to know their legal rights and entitlements.  The unforeseen hardship provisions will hopefully provide a small amount of comfort at this difficult time and while the mortgage may not be the highest priority for many, it would be advisable to ask for help using these provisions sooner rather than later.