What To Do When You’re About To Default On A Loan

When we think of loans, we very rarely think about what we’re going to do if things go wrong. That is, until they actually do. The truth is that it’s common for borrowers to come across hard times, and when loans are involved, they may go unpaid. If things are getting tough for you financially, and you’re worried about defaulting on your debts, consider the following.

Call Your Lender

When times are getting tough, the last thing you may want to do is talk to your lender. After all, this is the same company that you’re worried about being able to pay. However, these calls are not quite as painful as you think they may be.

At the end of the day, your lender knows that some of their borrowers are going to default, and a smart lender is going to want to do whatever they can to help you avoid that potential outcome. In fact, some big lenders like Chase, Bank of America, Citigroup, Discover, and more offer financial hardship programs that are designed to help reduce payments and avoid penalties for consumers with financial concerns. At the end of the day, the worst thing that can happen is that your lender will not be able to help. The situation will never get worse by the borrower taking proactive steps when times get tough.

Consider Your Options

After speaking with your lender, take a bit of time to explore other options as well. The two most common forms of debt relief that aren’t offered by the lenders directly are debt consolidation and debt settlement. Take a bit of time to research these options. Once you have, consider the option provided by your lender, as well as debt consolidation and debt settlement and how these programs may fit into your unique financial position. Nine times out of ten, after doing your research, you’ll find the program that’s best!

What If I Can’t Pay Anything At All?

The truth of the matter is that not everyone will be able to pay their debts back. Sometimes, financial hardships can be so much to deal with that paying anything towards debts can feel impossible. If this is the case, while times will get stressful, you’re not going to go to jail, nor is it OK for you to be harassed. Believe it or not, debt collectors have rules to follow too. So, if these are some of your concerns, rest assured that none of this will happen. Nonetheless, if this is the case, here’s what you can expect to happen next.

  • Your Lender Will Attempt To Collect – First and foremost, your lender is going to try and get the money that is owed. They will send statements, late payment notices, and will likely even call you to try and get a payment. However, they must follow the rules set forth in the Fair Debt Collection Practices Act when collecting debts. If these rules are broken, you may have legal recourse.
  • Your Lender Will Sell Your Debt – In most cases, once a lender determines that they cannot collect on your debt, they will perform a charge off. That means that they will sell your debt to a debt collector either at pennies on the dollar or in a deal where the collector gets a percentage of the amount of money collected. From there, the debt collector will be in charge of collecting on your debt.
  • You May Be Taken To Court – If a debt collector deems that they will not be paid on a debt, and the debt is worth enough to that collector to sue over it, you may be taken to court. This process generally takes quite a bit of time, but once a judgement is placed, the holder of the debt has further legal recourse when it comes to collecting. Therefore, before letting debts go too far, bankruptcy is an option. However, it should always be a last option.

Do I Have To Deal With Harassment?

NO! The Fair Debt Collection Practices Act (information linked to above), protects you from harassment by lenders. This is done by providing a borrower a way to opt out of phone calls, requiring lenders to only call during certain hours of the day, and limiting the vocabulary these lenders can use to ensure that no threats are made. Debt Consolidation’s informative guide on debt collectors harassments, elaborates what to do if things escalate. For example, if you feel as though you have been harassed by a collector, send a certified letter letting them know that they may no longer contact you. If further contact takes place, call the attorney general of your state and consider hiring a lawyer. You have rights, and debt collectors cannot forget about those rights without legal repercussions.

Final Thoughts

Debt can be overwhelming. However, it may not be as bad as you think it is. The truth of the matter is that while lenders do have some ways to collect, and debt is best if dealt with proactively, you’re not going to go to jail and if you are being harassed, you don’t have to stand by and deal with it. The best thing you can do is take any steps you can do to solve the problem and do your research to know your rights!