financial hardship

What Is a Financial Hardship Letter, Exactly? Here’s a Quick Explainer

Over 3/4 of Americans are currently in some sort of debt.

Whether it be from past student or business loans, credit card debt, or a mortgage on your home?

The unfortunate truth is that the percentage of Americans who currently can’t afford their homes due to debt or other financial problems has risen by close to 150% in recent years.

If you’re among these people, writing an effective financial hardship letter may be able to help you to keep your home. But what are some common hardship examples, and what elements should a strong letter of hardship include?

In this post, we’ll tell you everything that you need to know when it comes to how to write a hardship letter.

What Is a Financial Hardship Letter?

Before we get into the specifics of writing an effective financial hardship letter?

Let’s first discuss what exactly one is.

A hardship letter is a document that you will write to your lender when you need to apply for some sort of modification to your mortgage or your loan. You will need to write one as a sort of “explanation” as to why you can no longer make the standard repayment amount, or why you have missed payments.

Your letter needs to make it clear to a lender that you want to be able to make your payments on time and in the full amount. It’s just that, because of unexpected circumstances, you are currently unable to do so.

In other words: a financial hardship letter isn’t a “get out of jail free” card that will allow you to behave irresponsibly or “buy you time” when it comes to repaying your debts.

It is a proactive way to show your lender that you take your debts seriously and that you want to work with them to find a way to modify your repayment plan in a way that’s achievable for you but still beneficial to them.

You will also need to tell your lender the steps that you are willing and able to take in order to get your financial situation back on track. You’ll also need to give them a rough estimate of how much time that you believe this will take.

A well-written financial hardship letter can help you to avoid having to foreclose on your home or prevent you from making a short sale.

Of course, not everything qualifies as a financial hardship. Read on to learn more.

Common Financial Hardship Examples

Just because you went on a spending spree at the mall or because you would rather spend the money on something else other than repaying your debts, does not mean that you’re experiencing a financial hardship.

Situations like that only tell lenders that you’ve made poor financial decisions — so don’t expect too much sympathy from lenders if that’s the case.

However, there are hardship examples that are legitimate and can cause you just as much emotional pain and stress as they can financial problems.

So, before you draft that letter, let’s talk about common financial hardship examples.

These can include incarceration, a sudden loss of your job, or an unexpected reduction in your income. Maybe you’ve had to take a pay cut, or perhaps your partner has been injured, ill, or unable to work because of other medical issues.

Perhaps the terms of your mortgage have changed. Perhaps you’ve recently dealt with a natural disaster, or maybe you’ve even gotten a divorce. In some cases, you may even face financial hardship due to a death in the family.

Remember that, unfortunately, a reduction in the expected value of your property does not qualify as a financial hardship.

How to Write a Hardship Letter Effectively

Now, let’s take a closer look at how best to write a hardship letter that will give you the results you want.

The first thing you’ll need to do is to calculate your loan amount and figure out exactly the kind of modification you want to request. Getting specific with the numbers makes your letter much more likely to be taken seriously.

Your letter should also include your name and address, the financial institution you’re working with as your lender, and your loan/bank account number.

Begin quickly, as these letters truly shouldn’t be longer than one page. Explain your specific hardship as neutrally and succinctly as possible.

In other words, this isn’t the time to trash your ex-employer or your ex-spouse for causing you financial problems. Then, explain what a modification to your loan would allow you to be able to do.

How would it help you to improve your financial situation, and what steps will you personally take to do so? Then, it’s time to move into the specific numbers when requesting a loan modification.

Then, close by explaining to your lender how you plan to prevent yourself from getting into this situation again in the future.

Need Additional Help With Your Financial Hardship Letter?

We hope that this post has helped you to understand not only the situations that may make it necessary for you to write a financial hardship letter but also how to craft one effectively.

We understand that, when you’ve fallen on hard financial times, it can sometimes feel impossible to get things back under control again.

Getting approved for a repayment plan can make things much easier.

Looking for additional advice on how to write a hardship letter for a specific situation?

Whether you need a good template for a letter due to property damage, a job loss, medical bills, or more, we have the information that you need to include in your letter.

Let us help you to keep your head above water when you need it the most.

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