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Experiencing a financial hardship can affect your ability to repay your debts. Examples include unemployment, divorce or separation, illness, injury or death in the family. In any of these cases, you may be afraid your home loan will go into foreclosure. You may even have debts to other lenders, and bankruptcy will be one option. Bankruptcy is very difficult to overcome in the future. Instead of declaring bankruptcy, consider ways to have your debts modified through financial hardship assistance.
Declaring Financial Hardship
Most lenders will require you declare financial hardship in writing. To do this, you should consider the many elements of a successful financial hardship plea. Those elements are simple:
- Prove you have experienced an unforeseen hardship
- Prove this hardship makes it impossible for you to continue to meet your debt obligation as it stands
- Prove the hardship will not go away in the immediate future
To prove you have experienced a bad illness, for example, you will need to supply information from your doctor recording your visits and potential diagnosis. If you have been laid off, your employer can provide you with the information you need to seek financial hardship assistance.
Getting a Mortgage Deferral
Your home loan may be eligible for refinancing to help you afford loans during the period of hardship. However, if you have totally lost your income, even refinancing may not help. In this case, you can ask for deferral of the loan. This means no loan payments will come due for a period of time. You will still be assessed interest, in most cases. You can pay this interest each month, which will amount to only a portion of your loan. You may also ask the mortgage lender to stay even the interest payments. Most lenders will want to work with you to avoid bankruptcy. In a bankruptcy, they will lose money too, so do not be afraid to ask lenders for help.
Asking for Forbearance
If your loan has already gone into delinquent status, you may need to seek forbearance. In this case, the lender will stop enforcing the foreclosure while you attempt to bring the loan current. This is an option for a person who has experienced a period of hardship but is in the recovery process. For example, you may have lost your job and filed to get the loan deferred. As your payments were late, the loan slipped into delinquency. Now you have a job again, and you would like the chance to save yourself from bankruptcy.
Seeking Legal Help
When talking with a lender directly is not enough, you can seek the assistance of an attorney. An attorney can work with you to negotiate a deal with the lender to mitigate losses on both sides. For example, the lender may allow you to attempt to short sell the home. In this case, you can stop making mortgage payments and sell the home to pay off the remainder of the mortgage. Short sales typically cost a lender less than foreclosures, and an attorney will possibly be able to arrange this situation better than you can on your own.
