Hardship Letter To Creditors | Alternatives To Bankruptcy Series

admin — Thu, 02 Jul 2009 07:05:07 +0000

Hardship Letter To Creditors | Alternatives To Bankruptcy Series

Writing A Good Hardship Letter

When used in moderation, access to credit can be a very powerful money management tool. Over the course of our lives, there are a number of important purchases that we’re expected to have to finance with debt. The prime examples are cars and houses. So as you can imagine from this, there are very few people in our society that can claim to be totally debt free.

Being in debt for a manageable amount is usually not a problem, but as most things financial, debt should really be used in moderation. Some people find themselves in the unfortunate position where their debt is so high that their income is not enough to even make the payments on what they owe. That’s when they start defaulting on their loan and credit card payments, and have bill collectors harassing them to pay.

In those situations, some people still have the option of getting a personal loan to consolidate their debt, and that can sometimes be a viable option. Some other people just ignore the situation, hoping it will go away. We all know it doesn’t, and those people pay a step price for that choice. Another group files for bankruptcy, hoping for a new start. This impacts your credit negatively for 10 years, plus if you happen to owe the IRS money or have student loan debt, you can’t include them in bankruptcy filings.

The tougher someone’s financial situation is, though, the more likely they will be to turn to bankruptcy as an alternative to their credit problems. Most of them do so because they think it’s the only option. The truth is, when you’re way over your head in debt, your first action should be to contact your creditors and discuss the situation with them. They’ll be interested in hearing you because if they work out a payment plan with you, they will get some of the money, as opposed to nothing if you file bankruptcy.

So what you should do is get in touch with your creditors to reach an agreement on how you’re going to manage to pay back what you owe. They may have to forgive part of your debt and/or give you a lower interest rate to ease up the burden on you. In order for them to do this, you have to write them, using what is known as a hardship letter. This letter should summarize your specific financial situation to the lender, painting a clear and honest picture so they can understand exactly why you’re no longer able to make the payments on your debt.

In your hardship letter, ask for confirmation of the details of the debt as it currently stands: principal amount, accrued interest, remaining duration, frequency and amount of the payments, outstanding payments, penalties or finance charges if applicable, whether the debt is secured or unsecured, and whether there’s any insurance policy attached to it.

Make the letter simple and to the point. Although the lender needs to know your financial situation, he/she is not interested in your life story. Keep your note concise and of a single page as if it’s longer it might not get read at all.

Provide all the information related to your financial account to them. Attach clarifying documents as necessary including: cash flow statements, invoices, income and expenses statements, etc.

Mention clearly the purpose of your letter, so that the reader knows outright what to expect and the efforts you are making to increase your income to save home.

Be humble and thank the addressee in advance and also mention that you are looking to do business with them in future.

Alternatives To Bankruptcy - How To Avoid Bankruptcy

Writing a hardship letter to your creditors to negotiate how you’re going to pay off your debt is a good alternative to bankruptcy. The reason why some people look for alternatives to bankruptcy is that they now realize that the world of finance is pretty complex and that things are rarely as simple as some people might want to make them sound.

The first reason to try to avoid bankruptcy is that filing for bankruptcy does not automatically mean that all of your debts are wiped clean. Although that is what most people think, that’s not the truth. For example, it is the court’s decision, not yours, as to which chapter of bankruptcy you will be approved to file.

If you are approved for chapter 13, your debts are reorganized and you are still required to pay them, albeit at a lower monthly cost to you. Chapter 7 is the one that wipes the slate clean but even then, there are several types of debt that cannot be eliminated via any form of bankruptcy (most notably student loan debt and debt owed to the IRS). If your debt load is made up in large part by these kinds of financial obligations, then you might find yourself facing the cons of bankruptcy without its pros.

Besides writing a hardship letter, other alternatives to bankruptcy include (but are not limited to) getting a debt consolidation loan, enrolling in a good debt management program, getting a second job and use that paycheck to pay down your debt, and so on. You should really explore all your options to come up with the best one for you.

Your Finish Rich Plan - A Personal Finance Blog

Hardship Letter To Creditors | Alternatives To Bankruptcy Series