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What Is A Hardship Letter?

A hardship letter is something most companies will require to consider you for a “work out”. This is your opportunity to appeal to them to give you another chance. This should not be used to complain for what they have done or not done to make your situation worse.

This letter must be honest and represent the facts clearly. It must prove to them that the situation that caused you to fall behind is temporary and you are not in a position to make your payments on time.

You must also have a legitimate excuse for falling behind (which we shall discuss later) financial problems in itself would not be an adequate excuse. Remember, the hardship letter is only one piece of the workout.

The reality is lenders really don’t care what the person’s situation is; they simply want their money. The best option, however, is to contact the lender by phone and explain the situation so as to learn what the lender’s policy is in such matters.

A letter will likely get a response of “call this number” or something similar, if indeed there is a response at all.

If the party chooses to make the initial contact by mail the best thing is to keep it brief and to the point. Explain why it is not possible to comply with the original terms of the agreement, and request modification of the obligatory terms until your financial situation improves.

What Is Required In A Hardship Letter?

People understand that financial hardship sometimes occurs. None of us enter into a credit agreement knowing that at some point in the future we may have to back out or write a financial hardship letter.

A hardship letter is easy however; the hardship letter works with collection agencies in the event it has gone that far, where they will handle the process in exchange of accepting a small partial payment arrangement. If not, send it directly to the creditor that you first did business with.

Your letter needs to be sent to the collection agency (if they are involved) or to the original creditor to convince them to cut you some slack. The basis of the letter is anything that will prove why you are in the position you are in and why you are presently asking for help.

You must remember that hardship letters do not resolve your debts. And when you have completed your letter you must either fax the letter or mail it certified.

What The Letter Must Contain

Name: Your
Address: Your Address
Lender’s Name: and Your Loan Number or Identifying Information (other than name)

The letter should contain: the reason for default, an explanation of the hardship, the expected duration of the hardship, willingness to participate in a workout solution, desire to retain ownership (of what you have agreed or signed to with the lender).

Good Reasons

• Loss of Employment

• Medical Complications

• Disaster Victim

• Death

• Forced Relocation

• Disability

Poor Reasons

• You are a Student

• Legal Issues

• Filing Bankruptcy

• Overextended financially

• Pay Cut

• Purchased a Car

Basic letter breakdown: introduction, your offer to resolve your debt, your hardship situation, thanking them for their time, and your current contact information.

When people encounter financial problems in their lives, they often panic and think that there is no way out of their current situation. The burdens seem too big and complex to overcome and people soon lose all hope with regards to their financial circumstances. They often lose a proper perspective on the big picture and fail to notice all of the different options that are available to use that will help them get through their monetary problems.

Most of these problems come from the lack of discipline and patience with regards to a person’s income and budget. People acquire so much debt that they soon become entrapped and are unable to pay off all of the loans and credit card debt that they have accumulated over time. This is exactly the type of situation that credit companies want their customers to be in because that is how they earn a majority of their money.

Whenever a person becomes entrapped in large amounts of debt and are unable to make their necessary monthly payments, they seek for alternative methods that will help them financially survive until they receive their next form of payment. Many people take out additional long term loans or even multiple credit cards to cover the money that they have already borrowed. This is a risky method because people often become even more entrapped under the overweighing amount of debt that has built up.

Some people who suffer from financial burdens in life sometimes consider the possibility of applying for a cash advance loan. A cash advance loan is pretty easy to understand and just as easy to obtain. This type of loan is also known as a payday loan because it offers financial assistance for people until they receive their next method of payment.

A cash advance is like a short term loan that helps provide for people’s needs until their next payday. They often have extremely high interest rates attached to them and additional fees that are to be paid at the end of the loan term. These interests rates are ridiculously high because those who apply for the loans are those people who desperately need them.

People who apply for cash advanced loans are those who often have no credit history or a very bad credit report from past financial failures. The owners of such payday loan businesses know that they can feed off of the desperation of people with a bad credit history, knowing that they cannot go anywhere else to acquire financial aid and support for themselves. These people apply for these cash advanced loans because it converts into fast and easy cash that is easily accessible and usable for the things they need right away.

Within the last few years, the federal government has stepped in and placed certain limitations on these types of businesses in order to protect people with a lower class income. These payday loan businesses are only allowed to attach interest rates to a certain point, and the amount of fees are also limited.

People love to purchase new things and those within the United States like to do this at a very active rate. They purchase new electronic supplies, televisions, houses, cars, and other things that bring them fun and excitement. Some of the things they buy become old and unentertaining very fast and so they must buy new things in order to satisfy their desires.

One of the most common things for people to buy, sell, and trade is an automobile. People love to drive the wheel of a brand new automobile and often like to try out new ones every couple of years. They take out a loan to buy the car, and then trade that one in for a new one.

Some people have even turned this constant exchange of cars into a business where they try to make money off of what price they sell their old cars for. Sometimes, however, people soon discover that the resale price for their vehicle is less than what they expected and are unable to sell their old cars for the price they want. These types of people who find themselves in such situations end up selling their car for a lesser price and still end up with some amount of debt.

Car owners who sell their car for less than what is left on the car loan find themselves in a very tricky situation. People with this type of debt are considered as having an upside down car loan and are left to figure out how to pay off the rest of the debt. There are many different options that are available to such car owners, but they should carefully consider which method best fits their circumstances.

Many people try to take out an additional loan to help cover the rest of the previous car loan that they have to pay off. Although this method might seem very appealing and somewhat of an easy solution, in the long run it will only cause you to become more entrapped in debt. This option will increase the amount of debt you have to pay off because of the high interest rates that are often attached to every loan that you apply to obtain.

The other option that is available to car owners with upside down car loans is to refinance your financial obligations and to consolidate your loans into one easy payment. Combining your car loans into one monthly payment can eliminate a lot of stress and allow car owners to purchase other vehicles. This option can be accomplished by contacting a financial advisor and together organizing a specific plan that works out best for you.

Refinancing your various car loans will also help you to obtain a lower interest rate because all of your loans are consolidated into one. This is very strategic because a lower interest rate on one monthly loan payment will ultimately save you a lot of money in the long run. It also eliminates a large amount of stress and helps build up your credit score in the future.

Know What You Are Doing And How To Do It

When you bargain with a debt collector, you are going head-to-head with a tough professional negotiator. You have to know what’s truth and what’s not the truth so they don’t frighten you into a settlement you can’t afford or worse than the original debt.

Many states have their own debt collection laws. You should contact your attorney general’s office or obtain a free consumer brochure on debt, available from the Consumer Law Center. Ask for a copy of “What You Should Know About Debt Collection.”

When you are well informed of your rights, debt collectors know they can‘t get away with certain things and they are less likely to try aggressive tactics. Say as little as possible and stick to the facts.

Don’t give a debt collector personal information such as where you work, where you bank or your checking account number. No matter what a debt collect says, keep your cool and stay focused on the negotiation.

The more in control you sound and the less you fall apart, the more likely you are to get what you want out of the negotiation. Use the power of silence. Do not say anything except maybe “hmm.”

Offering a single lump sum payment is a great way to go. Debt collectors want your money, (that is their number one goal), to be done with you and to move on to the next client.

Prioritize And Estimate How Much You Can Pay

No matter what a debt collector says, an unpaid credit card bill is not the most important bill you have to pay. Providing necessities for your family comes first. Don’t put yourself in that position where you cannot buy food or pay utilities.

Don’t do anything you can’t afford to do and avoid doing anything dangerous. Always start by offering less than what is being asked for.

Because commissions for debt collectors are based on what they do each month, you may want to try negotiating near the end of the month. And at the time when you agree on a payment amount, you’ll want to get it in WRITING.

It’s really important consumers to get confirmation in writing or you’ll have trouble making the deal stick later. You might as well write it yourself and get him to sign it.

Stipulate The Terms

Send the letter via certified mail so you’ll receive a receipt once the letter is delivered.
The letter explains that the collector has agreed to accept the negotiated settlement amount as payment in full for your debt. Keep a copy of the letter for your records.

If you plan to pay by check, add the following disclaimer: “Cashing this check constitutes payment in full.” Write this right on the check. Perhaps paying with a money order would be wiser.

Then ask the debt collector to remove any negative information they have placed on your credit report. At the very least, insist that your account be listed as paid in full rather than paid in settlement. Once they agree, get it in writing.

The collector will push and push for you to send them money immediately. Don’t do anything until you have confirmation of a payment agreement in writing. Because you need it in writing, you have to resist those demands and quick offer to do it overnight.

Between basically 2002 and 2005 lenders started using creative mortgages in ways they’d never been used before. New mortgages were invented and sent to the market that allowed people to borrow for large homes they would normally not be able to afford.

The problem with these loans was they acted like promotional credit cards - they carried a low initial interest rate that would step up to something more normal when the promotional period ended. Unfortunately, consumers borrowed money n0t based on whether they could afford the conventional payment, but whether they could afford the promotional payment.

Fast forward to 2006 and 2007. Interest rates have risen, and these aggressive borrowers are seeing their promotional interest periods end. Their rates are climbing, and worse, they’re variable. That means that in theory their monthly payment could increase every month until they hit their maximum interest rate per the terms of the loan, which could go as high as 15% to 18%. The difference in the monthly mortgage could be hundreds of dollars. That jump in payment would kill almost any family’s budget.

This equation leads to families defaulting on payments, which puts mortgage companies in jeopardy. With lenders in jeopardy, their first move is to severely tighten lending practices. This keeps money out of the economy, and as we’ve seen, kills home sales.

The moral of the story? Both lenders and borrowers will need to be more forward thinking in the future to avoid the type of crisis we’re seeing in the US economy today.