Terminal Illness & Debt — What the Law Says

1. What Australian law considers "terminal illness"

There is no single statutory definition of "terminal illness" in Australian law. Different Acts and instruments define it differently for different purposes. The three definitions that matter most for LWD's beneficiary class are:

1.1 The superannuation definition — SIS Regulation 6.01A (the strictest)

Superannuation Industry (Supervision) Regulations 1994 (Cth), regulation 6.01A, defines a "terminal medical condition" as existing when all of the following are true:

The consequence of meeting this definition is significant: the person can withdraw their entire superannuation balance tax-free as a lump sum (Income Tax Assessment Act 1997 (Cth), s.303-10), regardless of preservation age. This is one of the largest sources of pre-death cash available to LWD beneficiaries and directly drives the case-intervention timing decisions.

1.2 The life-insurance definition — usually contractual (24 months, sometimes 12)

Life-insurance policies and their group counterparts inside super funds define "terminal illness" for the purpose of a terminal-illness benefit — an early lump-sum payment of the death benefit while the insured is still alive. The common formulations are:

• The insured is suffering from an illness or injury likely to result in death within 24 months, certified by two medical practitioners (mirroring the SIS definition) — used by most APRA-regulated group life policies since the 2015 industry alignment; or
• The insured is suffering an illness or injury likely to result in death within 12 months — the older definition still found in some retail life-insurance policies and legacy super funds. This narrower test excludes some people who would qualify under the 24-month test and is a common cause of terminal-illness claim disputes at AFCA.

The two definitions are not equivalent. A beneficiary certified as terminal by their treating team may qualify for super release but not for a life-insurance terminal-illness benefit — or vice-versa — depending on the exact policy wording. This mismatch is the reason LWD needs financial-relief capacity that does not depend on either payout landing.

1.3 The palliative-care / clinical definition — variable

Clinical usage in the Australian health system generally refers to "terminal illness" as an advanced, progressive, life-limiting condition where death is expected within months, with prognosis increasingly certain as function declines. This is the definition used by state-funded palliative-care services, the National Palliative Care Standards, and My Aged Care assessments. It is broader and softer than the two above — it captures beneficiaries who have not yet been formally certified for super release or an insurance payout but who are already unable to work and already accumulating financial harm.

2. What creditors MUST do when a debtor is in financial hardship (regulated consumer credit)

2.1 The hardship notice — sections 72 to 75 of the National Credit Code

The National Credit Code (Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), the "NCCP Act") applies to almost every consumer credit contract in Australia — home loans, credit cards, personal loans, car loans, buy-now-pay-later contracts (from 10 June 2025), and consumer leases. For regulated contracts, the following obligations on the credit provider are statutory, not discretionary:

Section	What the credit provider MUST do
s.72(1)	Accept a hardship notice from the debtor. The notice can be given orally or in writing — a phone call is legally sufficient. The debtor does not need to use any particular form of words, only communicate that they are unable to meet their obligations.
s.72(2)	Within 21 days of receiving the notice: either (a) respond substantively, or (b) request further information relevant to the decision. Failure to do either is itself a breach.
s.72(4)	If further information was requested and received, respond within 21 days of receipt. If further information was requested and NOT received, respond within 28 days of the original request.
s.72(5)	The response must state (i) whether the contract will be changed, (ii) if so, how, (iii) if not, the reasons, and (iv) that the debtor may complain to AFCA and how to do so.
s.73(1)	If the change defers or reduces obligations for more than 90 days, provide written notice setting out the new terms within 30 days of the agreement.
s.88 & s.89A	Enforcement action (issuing a default notice, commencing court proceedings, repossessing security) is suspended during the hardship-notice process. Any default notice previously issued cannot be relied on for enforcement while a hardship application is being determined.
NCCP Regs	Under the Regulations, a creditor cannot commence enforcement action for 14 days after refusing a hardship variation (unless the debtor made a separate request in the previous 4 months). This is a hard cooling-off period.

2.2 What the creditor DOES NOT have to do

This is where the law leaves substantial discretion — and it is the gap LWD is designed to fill:

• Section 72 gives a right to ask for a variation, not to receive one. The creditor is only required to grant a variation if there are "reasonable grounds" that (a) the debtor cannot meet the current obligations, and (b) they reasonably expect to meet varied obligations. Terminal illness usually satisfies (a) but often fails (b) — the debtor's income is not going to recover.
• The creditor is not required to write the debt off, even in cases of imminent death. Debt waiver on compassionate grounds is a discretionary act — see Banking Code para 180 (below).
• The creditor is not required to freeze interest. Interest often continues to accrue during a hardship arrangement, which means the debt grows during the terminal illness even while payments are paused.
• The creditor is not required to reduce the principal balance. Any "settlement" (payment of less than the full balance in full discharge of the debt) is entirely voluntary on the creditor's part. This is the transaction LWD funds most often.
• There is no NCCP hardship right for utility bills, phone bills, ATO tax debt, Centrelink debt, HECS/HELP debt, private-school-fee debt, medical/dental debt, funeral loans on non-credit terms, or unregulated commercial loans. Different, weaker regimes cover these (industry codes, ombudsmen, ATO discretions, various administrative processes) — and the collector's obligations are correspondingly more limited.

3. What creditors MUST do — Debt Collection Guideline (ASIC/ACCC RG 96)

The Debt collection guideline: for collectors and creditors (April 2021) is jointly issued by ASIC and the ACCC and applies to all debt collection activity — regulated credit and unregulated debt alike. It draws its legal force from section 12DJ of the Australian Securities and Investments Commission Act 2001 (Cth) and section 50 of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)), both of which prohibit the use of "physical force, undue harassment or coercion" in debt collection.

3.1 Specific protections for seriously-ill debtors

RG 96 reference	Rule
Part 2, s.2(c)	"If you are aware that a debtor is unable to make meaningful and sustainable repayments towards a debt, then continuing to contact the debtor to demand payment will not be reasonable or appropriate." Chronic or long-term illness or injury is expressly named as a reason a debtor may be unable to make meaningful repayments.
Part 2, s.7(g)	"Do not visit the debtor's home if you know of special circumstances (for example, the debtor is seriously ill or mentally incapacitated) which would make face-to-face contact inappropriate. Leave the debtor's premises immediately if you become aware of such circumstances during the visit."
Part 2, s.17	Prohibits abusive/offensive/discriminatory language; disrespectful remarks about the debtor's character, situation, financial position, physical appearance or intelligence; shaming (including via social media or workplace notification); and aggressive, threatening or intimidating manner.
Part 2, s.23(d)	Collectors must implement fair, documented policies for identifying vulnerable debtors — including those with mental-health conditions, those experiencing family violence, and by clear implication those with serious physical illness.
Part 3	"Undue harassment" is defined as "unnecessary or excessive contact or communication with a person calculated to intimidate or demoralise, tire out or exhaust a debtor." "Coercion" involves "actual or threatened force or pressure that restricts a debtor's choice or freedom to act." Both are civil-penalty breaches under s.12DJ ASIC Act.
Contact frequency	The guideline sets soft caps on collector-initiated contact (e.g. no more than 3 phone contacts per week or 10 per month; no letters more than once a fortnight for the same debt). Contact volumes above this are indicators — though not conclusive proof — of undue harassment.

4. What banks specifically must do — Banking Code of Practice 2025

The Banking Code of Practice (approved by ASIC in June 2024, in force from 28 February 2025) binds every ABA-member bank as a contractual term of their customer agreements. Enforcement is through AFCA (individual disputes) and the Banking Code Compliance Committee (systemic compliance). Key provisions for terminally-ill customers:

Paragraph	Obligation
52–54	Banks commit to "take extra care" with customers experiencing vulnerability. Para 52(e) expressly names "serious illness" as a driver of vulnerability. Banks must work with the customer to find a suitable way to bank, respect privacy, and facilitate appointment of a third-party representative (which enables LWD case managers to act as the beneficiary's proxy with signed authority).
167	If the customer is in Financial Difficulty, they (or their representative) should contact the bank as soon as possible. This is the invocation point.
175	The bank will "work with you to help you find a sustainable solution to your Financial Difficulties" — the affirmative counterparty duty that anchors LWD's negotiation posture.
178	Specific tools the bank may offer: interest-only periods, loan extensions, deferral of payments, capitalising arrears, temporarily reducing or waiving fees. These are discretionary but code-anchored.
180	Debt waiver on compassionate grounds. The bank may, in exceptional circumstances, waive an unsecured personal loan or credit card debt entirely — expressly on compassionate grounds. This is the paragraph LWD negotiators will cite most often. It is discretionary — the bank does not have to agree — but it exists as a code-recognised outcome and the bank must consider it in good faith on request.
190	The bank will not sell the debt to a third party (i.e. to a specialist debt buyer) if any of the following applies: (a) the bank is actively considering the customer's financial situation, (b) the customer is complying with a hardship arrangement, or (c) the customer is experiencing ongoing vulnerability with no reasonable prospect of debt recovery. For terminally-ill customers, subparagraph (c) is directly on point.
132–145	Deceased-estate protocols. Banks must treat estate representatives with "respect and compassion", promptly secure accounts, stop and refund fees for services no longer being provided, and give clear information about what an estate representative can and cannot do. This governs how banks respond to LWD's post-death case closure work.

Customer-Owned Banking Institutions (mutual banks, credit unions) are bound by the parallel Customer Owned Banking Code of Practice, which contains materially equivalent provisions.

5. Utilities, telcos and other essential-service creditors

Utilities and telcos are covered by industry-specific regulators and codes, not the NCCP Act. The key regimes and their hardship obligations are:

Sector	Legal / code source	Key obligation
Electricity & gas (NEM states)	National Energy Retail Rules; AER Sustainable Payment Plans Framework	Retailers must offer a hardship program to residential customers unable to pay bills due to financial hardship. Disconnection is prohibited while a customer is complying with an approved payment plan or hardship program. Life-support customers face additional disconnection restrictions.
Water	State-specific regulation (e.g. IPART in NSW, ESC in VIC)	All jurisdictions require hardship programs; disconnection is generally prohibited for residential customers except in narrow circumstances.
Telecommunications	Telecommunications Consumer Protections Code (C628:2019), Part 6	Carriers must have a documented financial-hardship policy, offer a range of options (payment plans, deferral, fee waivers), and cannot disconnect a residential customer while a payment plan is in place. TIO (Telecommunications Industry Ombudsman) provides EDR.
Health / medical	Public hospitals: no billing to Medicare-eligible admitted patients. Private hospitals & medical practitioners: contractual only.	No statutory hardship regime for private medical debt. Some private hospitals have compassionate-write-off policies. Private-health-insurance premium waiver / suspension on hardship is at the fund's discretion.
ATO tax debt	Taxation Administration Act 1953 s.255-5; ATO Practice Statement PSLA 2011/17 (Debt relief)	ATO has statutory discretion to release an individual from a tax liability on grounds of "serious hardship". Requires a Release Application (form NAT 15080). Not available to companies or partnerships.
HECS/HELP debt	Higher Education Support Act 2003	Repayable only when income exceeds indexed threshold. Extinguished on death (Section 137-5) — no HECS debt ever passes to the estate. Under an application, may also be waived on serious-hardship grounds during life.
Centrelink overpayment debt	Social Security Act 1991 s.1237A	Services Australia has discretion to waive debt where recovery would cause "severe financial hardship". Terminal illness is a documented consideration.

6. Enforcement pathway — RG 271 IDR + AFCA + regulators

When a creditor breaches the above obligations, the pathway is:

1. Internal Dispute Resolution — under ASIC Regulatory Guide 271, financial firms must acknowledge a complaint within 24 hours and provide a final response within 21 days for complaints involving a hardship notice or default-notice postponement request (versus 30 days for standard complaints). LWD case managers will trigger this timeline explicitly in every negotiation.
2. Australian Financial Complaints Authority (AFCA) — free, statutory external dispute resolution scheme. AFCA can make determinations that bind the financial firm up to $1,201,000 (as at 2025, indexed annually). AFCA membership is compulsory for all Australian Credit Licensees, AFSL holders, superannuation trustees and general insurers. Lodging an AFCA complaint freezes court enforcement — the creditor cannot obtain default judgment while the AFCA matter is open.
3. ASIC / ACCC enforcement — s.12DJ ASIC Act (financial services and credit) or s.50 ACL (goods and services generally). Civil-penalty proceedings by the regulator; individual right of complaint but no direct private right of action for damages.
4. Industry-code committees — Banking Code Compliance Committee, Customer-Owned Banking Code Compliance Committee, TIO, EWO (Energy & Water Ombudsman). These monitor code compliance and can require remediation.
5. State fair-trading offices — for unregulated debt (below the NCCP thresholds and pre-11-2004 contracts), state consumer-protection agencies have residual jurisdiction.
6. Court — as a last resort. Free legal help via community legal centres and (for social-security / immigration / consumer-credit matters) Legal Aid.

7. What happens on death — the debt does not follow the family (subject to important exceptions)

7.1 The exceptions — where debt DOES follow a family member

The debt follows a survivor only in these specific circumstances:

• Joint borrowers. Where the surviving spouse or family member co-borrowed the debt (as opposed to acting as guarantor), the survivor remains liable for the whole debt — a joint and several obligation.
• Guarantors. A survivor who personally guaranteed the deceased's unsecured debt is liable for it under the guarantee.
• Secured debts on jointly-owned assets. If the family home is mortgaged jointly, the survivor takes the whole property by survivorship and the whole mortgage debt. The creditor's security interest in the property survives the death.
• Assets bequeathed subject to a debt. If a beneficiary is bequeathed an asset (e.g. a car) that secures a debt, they take the asset subject to the debt — they must either repay/refinance the debt or hand back the asset.

7.2 The order of payment from a solvent estate

Under the succession legislation of each state (e.g. NSW Probate and Administration Act 1898), the executor must apply estate assets in the following order:

1. Secured debts, from the assets securing them.
2. Funeral expenses.
3. Testamentary and administration expenses (e.g. legal fees to obtain probate).
4. Unsecured debts, on a pari passu basis (equal ranking — no unsecured creditor is preferred over another).
5. Cash gifts to beneficiaries.
6. Specific gifts of property to beneficiaries.

7.3 Insolvent estates — where LWD's pre-death work matters most

If the estate is insolvent (debts exceed assets):

• The executor may negotiate write-offs with creditors — but creditors are not obliged to agree, and if the total unsecured debt to any single creditor exceeds $10,000, that creditor can apply to the Federal Circuit and Family Court for a bankruptcy trustee to be appointed to the estate.
• Once a bankruptcy trustee is appointed, the estate is administered under Part XI of the Bankruptcy Act 1966. Assets pass to the trustee, are liquidated, and creditors are paid a proportional dividend on their debts. Any shortfall is written off at that point — but not before.
• The bankruptcy of the estate is a matter of public record. It can affect the surviving spouse's own credit rating if their credit files show shared debts.

7.4 Assets that DO NOT pass into the estate

Some categories of asset bypass the estate entirely and go directly to nominated beneficiaries. These are not available to pay the deceased's unsecured creditors:

• Superannuation death benefits paid to a binding-nominated beneficiary (SIS Act s.59).
• Life-insurance proceeds paid to a nominated policy beneficiary.
• Assets held as joint tenants (bank accounts, real estate) — pass by survivorship.
• Assets held in a testamentary or family trust of which the deceased was not a beneficial owner.

8. The gap LWD fills — evidence for the ACNC / DGR "distress" test

Putting all of the above together, this is the evidence base LWD relies on to establish that a terminally-ill Australian in debt suffers "distress beyond ordinary suffering" — the Cairnmillar test the ATO Commissioner's PBI Interpretation Statement applies at paragraph 32:

• The statutory rights exist (NCCP s.72, RG 96, Banking Code) but require the beneficiary or their agent to invoke them, articulate the case, follow up within tight timeframes, and escalate to AFCA if refused. Terminally-ill people, by definition, do not have the time, energy or cognitive bandwidth for this process during their final months.
• The most powerful outcomes (interest freezes, principal reductions, full compassionate write-offs under Banking Code para 180) are discretionary, not mandatory. Getting them requires professional negotiation posture, evidence packaging and creditor familiarity that ordinary consumers do not possess.
• The gaps in statutory coverage (utilities in some cases, private medical, funeral costs, unregulated small commercial loans, informal family loans) leave beneficiaries with debts on which they have no statutory hardship rights at all — only whatever the creditor voluntarily agrees to.
• Post-death protection is real but limited: joint debts and secured debts on jointly-held assets survive and can cause the surviving spouse to lose the family home during acute grief.
• Free financial-counselling services (National Debt Helpline; community legal centres; Financial Counselling Australia members) are excellent but chronically capacity-constrained; their triage cannot prioritise "months to live" as a criterion; and they do not have the funds to pay the negotiated outcomes — they can only advise and advocate.
• There is no Australian charity presently combining (i) proactive intake tied to a terminal diagnosis, (ii) professional creditor negotiation on the beneficiary's behalf, and (iii) direct payment of essential living costs, negotiated settlements and residual debt discharge. This is the differentiated position LWD occupies.

9. Sources

• National Consumer Credit Protection Act 2009 (Cth), Schedule 1 (National Credit Code) ss.72–75, s.88, s.89A
• Superannuation Industry (Supervision) Regulations 1994 (Cth), reg 6.01A
• Income Tax Assessment Act 1997 (Cth), s.303-10 (tax-free super release on terminal medical condition)
• Australian Securities and Investments Commission Act 2001 (Cth), s.12DJ (harassment and coercion)
• Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law), s.50
• ASIC/ACCC Regulatory Guide 96, Debt collection guideline: for collectors and creditors (April 2021)
• ASIC Regulatory Guide 271, Internal dispute resolution (September 2021)
• ASIC Regulatory Guide 209, Credit licensing: Responsible lending conduct
• Australian Banking Association, Banking Code of Practice (28 February 2025 edition), paras 52–54, 132–145, 167–190
• Customer Owned Banking Association, Customer Owned Banking Code of Practice
• Australian Energy Regulator, Sustainable Payment Plans Framework; National Energy Retail Rules Pt 2 Div 6
• Communications Alliance, Telecommunications Consumer Protections Code C628:2019
• NSW Probate and Administration Act 1898; equivalent state legislation in VIC, QLD, SA, WA, TAS, ACT, NT
• Bankruptcy Act 1966 (Cth), Part XI (administration of insolvent deceased estates)
• Higher Education Support Act 2003 (Cth), s.137-5 (HECS/HELP debt extinguishment on death)
• Taxation Administration Act 1953 (Cth) s.255-5; ATO PSLA 2011/17 (release from tax liability on serious hardship)
• Social Security Act 1991 (Cth) s.1237A (Centrelink debt waiver)
• ASIC v Accounts Control Management Services (No 2) [2012] FCA 1290 (undue harassment in debt collection)
• Redfern Legal Centre, Financial Hardship factsheet (January 2024)
• ATO, Commissioner's Interpretation Statement: Public Benevolent Institutions (29 September 2025 update), paras 32, 44–46