Missed Chattel Mortgage Repayments: What Happens and What to Do
Missed a chattel mortgage repayment? What happens next, when it becomes a default, how repossession works and the options business owners have first.
Business Owners Hub
Chattel Mortgage Arrears · Default · Repossession
One missed repayment on a business chattel mortgage is a problem you can usually fix; three is a different conversation. This is what happens at each step, from the first dishonour to repossession, and the options to use before the lender uses theirs.
Quick Answer
A missed chattel mortgage repayment usually brings a late fee and arrears first, then a default notice if it is not fixed, and repossession is generally a later step, so talking to the lender early keeps the most options open. How the loan works is in our chattel mortgage guide, and refinancing an asset you are behind on starts with a chattel mortgage review.
Also called: chattel mortgage arrears, defaulting on equipment finance, behind on vehicle finance. Same situation; "arrears" is the lender's word for the overdue amount.
What happens when you miss a chattel mortgage repayment?
A missed chattel mortgage repayment usually means a late fee and arrears first, followed by contact from the lender asking when the overdue amount will be paid. If the repayment was a direct debit, your bank may also charge a dishonour fee, and the lender may add its own. The amounts vary by lender and are set out in your contract and fee schedule.
Nothing changes about the vehicle or equipment at this point. The business still owns the goods, they keep working, and the lender's security over them sits in the background as it did on day one. What the lender is watching is whether this is a one-off, such as a customer paying late or a card being replaced, or the start of a pattern. The overdue amount is recorded as arrears until it is cleared.
The cheapest fix is the fastest one: pay the overdue amount, or agree a date with the lender and get that date in writing. Timing between a missed repayment and the next step varies by lender and contract, so do not assume you have a set grace period. Whether a late repayment shows on your credit file, and what that means for the next application, is covered in our piece on credit file effects.
When does a missed repayment become a default?
A missed repayment becomes a default when it meets the default clause in your contract, which usually lists non-payment alongside other events such as letting insurance lapse or selling the goods without the lender's consent. The word has a precise meaning in the contract, and our glossary entry on default explains the general idea.
Before enforcing, a lender will usually send a default notice and time to fix it, as the contract sets out. The notice states the amount to pay and the date it must be paid by. If it is not paid, most business contracts let the lender call up the whole balance and move to enforce its security. Banks that subscribe to the Banking Code of Practice also follow the Code's commitments to small business customers before taking those steps.
Non-payment is not the only trigger. An insurance lapse is a default under most contracts, which is why the cover requirements in our truck finance insurance guide matter as much as the repayments. The clauses that define default, and how they read in a typical contract, are covered in our chattel mortgage contract clauses insight. Unfair contract term rules for small businesses can also apply to a default fee that is excessive for a single missed repayment.
Act this week
- Pay the overdue amount, or agree a catch-up date in writing
- Ask the lender for the exact arrears figure, fees included
- Check the direct debit account and the date it runs
- Confirm the insurance on the goods is current
- Note who you spoke to and what was agreed
Signs it is heading to a notice
- Arrears growing month to month with no plan
- Calls and emails from the lender left unanswered
- Insurance lapsed or not renewed
- Thinking of selling the goods without telling the lender
- Other business debts falling behind at the same time
How does repossession of business vehicles and equipment work?
Repossession under a chattel mortgage generally means the lender seizes the vehicle or equipment by a lawful method after default, then sells it or, less often, keeps it, under personal property securities law. The Personal Property Securities Register sets out the steps in its guidance on enforcing your security interests, and the lender's registration on the PPSR is what gives it priority.
Before a sale, the lender must give notice to you as the grantor and to any secured party ranked ahead of it. The goods must be sold for market value or the best price reasonably obtainable. The sale ends the security interest, the proceeds go to secured parties in order of priority up to what they are owed plus costs, and any amount left over comes back to you. If the lender wants to keep the goods instead of selling them, it must give notice, and you or another secured party entitled to that notice can object.
One detail matters for business borrowers. Those enforcement rules can be contracted out of when the goods are not mainly for personal or household use, so a business chattel mortgage may change some of these steps. Read your contract, and if the lender has already moved, have your solicitor read it with you.
| Stage | What usually happens | What you can do |
|---|---|---|
| First missed repayment | A dishonour or late fee, typically, and the overdue amount sits as arrears | Pay it, or agree a catch-up date with the lender in writing |
| Arrears building | Contact from collections, further late fees and a closer look at the account | Ask for a payment or hardship arrangement before any notice is sent |
| Default notice | A notice stating the amount to pay and the time to pay it, as the contract sets out | Pay within the time, or get an agreed arrangement in writing before it runs out |
| Seizure | The lender takes the goods by a lawful method | Ask in writing for the full amount owing and the overdue amount plus expenses |
| Before sale | Notice to you and to any secured party ranked ahead of the lender | Pay the overdue amount plus expenses to reinstate, or the full debt plus expenses to redeem, unless the contract excludes these rights |
| After sale | Proceeds go to secured parties in priority order; any surplus comes to you | Ask for an account of the sale, and get advice before agreeing to repay any shortfall |
Sources: Personal Property Securities Register, Enforcing your security interests, no last-updated date shown on the page. Read 16 October 2026.
Can you stop a repossession?
You can often stop a repossession before the goods are sold or kept, either by reinstating the agreement, which means paying the overdue amount plus the lender's enforcement expenses, or by redeeming the goods, which means paying the full amount owing plus those expenses. Reinstating puts the agreement back as if the default had not happened, and the goods come back to the business.
Both rights come from personal property securities law, and both are subject to what your contract says, because a business contract can exclude some enforcement rules. Ask the lender in writing for two figures: the reinstatement amount and the full payout figure, each with expenses itemised. Written figures stop the number moving while you arrange the money.
Redeeming usually means finding the full balance quickly, which usually means a refinance or the sale of another asset. That timetable is tight, so the earlier you start, the more choices you have. Once the goods are sold, neither right is available.
Do you still owe money after the equipment is sold?
You can still owe money after repossessed equipment is sold, because a shortfall can still be owed when the sale price, less the lender's costs, does not cover the balance. A forced sale of used plant or a work vehicle rarely achieves what a planned sale would, so the gap can be real.
The shortfall is a debt of the borrower. If a director signed a personal guarantee, the lender can pursue that director for it as well, which is where a business problem becomes a household one. Our guide to the director's guarantee sets out how that liability works, and the directors guarantee glossary entry gives the short version.
The same rules work in your favour if the sale goes well: any surplus after the debt and costs belongs to you. Either way, ask the lender for a written account of the sale, showing the price, the costs deducted and the balance applied. If you are guaranteeing the debt, talk to your solicitor or a financial counsellor before signing any repayment plan for the shortfall.
What options do you have before it gets that far?
You have the most options before a default notice is issued, and the first one is simple: talk to the lender before the notice. A borrower who calls first, explains the cause and brings a plan is treated very differently from one who goes quiet. In order, the options usually look like this.
- Catch up with a plan. Agree a date or a short schedule to clear the arrears, confirmed in writing.
- Ask for a hardship or payment arrangement. Lenders may agree to a short deferral, reduced repayments for a period or adding the arrears to the balance. What is offered varies by lender.
- Extend the term. Spreading the balance over a longer term lowers the repayment, at the cost of more interest overall.
- Sell the asset yourself, with the lender's consent. A planned sale usually beats a forced one, and the proceeds pay out the loan.
- Refinance. Moving the loan to another lender can reset the repayment. A low doc asset finance lender may look past recent arrears if the cause is explained and fixed. See how refinancing works first.
When refinancing, the question that decides most files is whether the missed repayments have a clear, finished cause, such as a large customer paying late or a job that ran over. The usual outcome is a short arrangement with the current lender plus a catch-up, or selling an under-used vehicle or machine to clear one loan and protect the rest. The chattel mortgage calculator helps test what a longer term would do to the repayment.
Handing the goods back is sometimes raised as an option. It does not cancel a shortfall, and it is covered in its balloon context in our guide to a balloon payment due when you are not ready to refinance. If a refinance has already been declined, read whether a broker can help after a bank decline, how long to wait before reapplying and how many credit enquiries are too many before applying again.
What protections and free help apply to business borrowers?
Business borrowers have fewer automatic protections than consumers, because credit used wholly or predominantly for business purposes generally sits outside the National Credit Code and its hardship rules. That does not leave you with nothing, but it does mean the protections come from other places.
- The lender's own hardship process. Most lenders have one for business customers, even where the Code does not require it. Ask for it by name.
- The Banking Code of Practice. Banks that subscribe to it make commitments to small business customers in financial difficulty.
- Unfair contract term rules. Small business standard form contracts are covered, including default fees and variation terms.
- Personal property securities law. Notice and sale rules apply to enforcement, subject to what the contract excludes.
- Complaints. Raise it with the lender's internal dispute team first, then the Australian Financial Complaints Authority (AFCA) within its rules.
For free, independent help, the Small Business Debt Helpline is run by Financial Counselling Australia with Australian Government funding. At the time of writing it is reached on 1800 413 828 on weekdays, and its counsellors can help you prepare a hardship request. Our guide to business loan protections covers the wider picture, and more guides for owners sit in the Business Owners Hub.
A missed chattel mortgage repayment starts with fees and arrears, becomes a default only when the contract's clause and notice say so, and reaches repossession later still. Until the goods are sold, reinstating or redeeming may still be open, but a forced sale can leave a shortfall that a guarantor carries. The files that end well usually involve a short arrangement or a planned sale agreed early, which is why the call to the lender matters more than any other step.
Key takeaway: call the lender after the first missed repayment, get any arrangement in writing, and line up a refinance or planned sale before a default notice arrives.Frequently Asked Questions
There is no fixed number of chattel mortgage repayments you can miss before repossession, because it depends on your contract's default clause and the notices the lender has to give. A lender will usually send a default notice and allow the time it states before enforcing, and banks that subscribe to the Banking Code follow its extra commitments. The safe plan is to treat the first missed repayment as the point to call the lender, and our glossary entry on default explains the term.
If you miss one chattel mortgage repayment, you will usually be charged a late fee and the overdue amount sits as arrears until it is paid. The goods stay with the business, and a single missed repayment that is caught up quickly is usually treated as a one-off. Pay it or agree a date with the lender in writing.
You can often stop a repossession on business equipment before it is sold, by paying the overdue amount plus the lender's enforcement expenses to reinstate the agreement, or the full amount owing plus expenses to redeem the goods. These rights come from personal property securities law, the framework behind the PPSR, but a business contract can exclude some enforcement rules. Ask the lender for both figures in writing and have a solicitor read the contract if enforcement has started.
You can still owe money after your equipment is repossessed if the sale price, less the lender's costs, does not cover the balance. That shortfall is a debt of the borrower, and a director who signed a guarantee can be pursued for it personally. Ask the lender for an account of the sale, and read our guide to the director's guarantee before agreeing to any repayment plan.
The hardship rules in the National Credit Code generally do not apply to a business chattel mortgage, because credit used wholly or predominantly for business purposes sits outside that Code. Most lenders still have a hardship or payment arrangement process for business customers, and banks that subscribe to the Banking Code have commitments to small businesses. The free Small Business Debt Helpline can help you prepare the request, and our guide to business loan protections sets out the rest.
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