How do you write a hardship letter to creditors?


The hardship letter should begin by describing your specific reasons for not making monthly payments.“The hardship letter should begin by describing your specific reasons for not making monthly payments.Gajus/Thinkstock

When the alarm buzzes at 6 a.m., you hit the snooze button. Fourteen months ago, you were laid off from your decades-long manufacturing job. When the late notices and past due bills began piling up, it jangled your nerves. Now, you feel numb to the demands they contain: "Pay now!" "Third and final notice!" "Danger of foreclosure!" It’s the mortgage you worry about the most. Although you faithfully paid the note from your savings, the well has run dry. Now, two months behind, your mortgage lender is demanding payment. Even if you started a new job tomorrow, you’d still need to work out payment arrangements to keep your home. And that’s where a hardship letter comes into play.

A hardship letter is used to describe the specific type of correspondence homeowners write to lenders when applying for a loan modification. Often, they’re part of a debt reduction program a homeowner launches with the help of a consumer credit counseling service. These letters also are typically required when requesting a loan modification under the federal government’s Making Home Affordable program [source: Prevost]. The Making Home Affordable program — operated by the Department of Treasury and the Department of Housing and Urban Development – was designed to help homeowners avoid foreclosure brought on by financial hardship. The hardship letter is just one of several factors considered when a homeowner requests lower monthly mortgage payments or lower interest rates. In some cases, such as unemployment, the program may even suspend a homeowner’s mortgage payments for 12 months or more [source: Making Home Affordable].

The hardship letter should begin by describing your specific reasons for not making monthly payments, whether illness, unemployment or a cut in pay. Then outline any concrete, measurable steps taken to alleviate the money crunch, such as spending hard-earned savings, slashing the grocery budget or taking public transportation. Next, temper this bleak outlook with a ray of hope by explaining how your financial circumstance have improved or are expected improve; this reassures the lender that you’ll be able to make modified loan payments in the future. Conclude the letter by clearly stating the assistance you hope to receive. This could be a lower interest rate, a reduction in principal, a lower payment or even a temporary suspension of payments.

It’s important to keep the letter short and to-the-point. Otherwise, you risk inadvertently sharing something that may negatively affect your request. For example, if you complain that you could only afford a four-day tropical vacation instead of your usual two-week holiday, the lender may conclude you simply didn’t do enough on your own to avoid the existing shortfall [source: Prevost].

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  • Prevost, Lisa. "Writing the ‘Hardship Letter.’" The New York Times. Jan. 3, 2013. (Sept. 3, 2014)
  • Making Home Affordable. "Learn About Your Options." 2014. (Sept. 3, 2014)

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