How Can a Hardship Letter Help You?

When you get into debt, it can seem insurmountable. Bills keep coming in and if the money isn't there to pay them, it can get harder and harder to keep on top of the problem. It can be overwhelming, particularly if you have no feasible way to solve it. Financial hardship is stressful and it affects a huge number of the American population.

Debt can start relatively early in life. Student loan debt currently stands at around $1.4 trillion and consumer debt is steadily increasing every quarter. The thing is, borrowing helps keep the economy buoyant – people buying cars, homes, sending their children to school and college. Where it becomes bad, for everyone, is when those debts aren't being repaid.

What Can You Do?

So, what can you do when you don't have money to pay off your big debts and you can't see a way out of the problem, short of winning the lottery? There are things you can do to find your way out of the mess. It's all about keeping your head straight and considering the options that are available to you. One of these is writing a hardship letter.

A Hardship Letter? What's That?

A hardship letter is a document that you compose to your lender to plead for leniency with your loan. They are most commonly used when a person is defaulting on their home loan and wants to avoid foreclosure, but can be used in other cases, such as for your credit card repayments. The purpose of the letter is to more thoroughly explain your situation to your lender and hopefully to convince them to allow you more time to come to terms with your debt and propose a solution for you to resume your monthly repayments.

When Should You Consider Writing A Hardship Letter?

There are several situations where you could use a hardship letter. The following are times that you will most likely find that a lender could be sympathetic to your cause and be most likely to consider a solution from you:

  1. If you lose your job – sometimes, losing your job can come completely out of the blue and many Americans don't have the savings to tide them over until a new opportunity comes along. Most lenders comprehend that it can take time to find a new job, so may be more understanding about the time it could take to pay your debt.
  2. A death in your family – if your spouse or the main bill payer in the household dies suddenly, it can be a huge shock, not just emotionally but also financially. The person or people left behind may struggle to get their head around what needs to be paid and when. If you've fallen behind with payments or have taken a financial hit because the deceased person is no longer contributing, then your lender is likely to be more accommodating.
  3. Natural disasters – if you have been a victim of a catastrophic event of nature that causes damage to your home or affects your financial situation in any way, then it would be a very tough lender indeed who wouldn't give you a break in this situation.
  4. Medical emergencies – if you, your partner or someone else in your family has an illness or medical emergency that incurs a lot of extra financial payments then this is definitely a solid reason to compel your lender to give you a break with your payments.

Remember that for any of these situations, you will need to prove what is going on with back-up evidence and supporting documentation. Pretending that any one of these is happening will not be looked on favorably if and when it is discovered you have made it all up.

The Layout of Your Hardship Letter

Before you write your letter, sit down and think about what you want to say and how you want to say it. There is no point dashing off something short about how you can't pay your bills and you want an extension. It's also not a good idea to write pages and pages about how the situation has come to this, as that letter will be binned. Keep it short and sweet, but cover all the important points.

You should:

  • Write it in simple terms. Don't be flowery in your descriptions, be basic. They want to know what happened, not a novel on the destitution of America.
  • Be specific. Use dates and statistics. Use actual numbers. Be detailed in these specifics – i.e. you are now earning 43% less per year due to your job change, your home has been valued at $124,000 less than it was three years ago.
  • Include your name, address, phone number, date of the request, loan amount and loan reference number.
  • Paint the worst possible picture. If your child has developed a recurring ear infection and your sister-in-law has moved in while she gets back on her feet, include this. If it is pertinent to the costs of your household, it should be in the letter.
  • Be careful not to come across as angry or too emotional. Don't bargain. Don't be political or make any political references – no matter how you feel, this is not relevant to your particular scenario right now.
  • Explain the methods you have used or what you have tried to do to alleviate your financial burden, for example, downgrading to a less expensive car, selling old toys etc.
  • Tell them what you want. Here you can offer solutions, tell them how you plan to get back on your feet and how you are committed to paying off this loan.

How A Hardship Letter Can Help

If your request is successful, your hardship letter could be the first step out of the financial despair that you are in. Your lender will be open to giving you further loans if you manage this situation the way you have said you will. It will also free you up to focus on other debts and lead you on a path to a healthier financial life.

Once you have reached this point, it's important not to fall back down the hole. Make sure you have better financial planning in future and follow tips to keep you financially sound.

hardship letter/hardship discharge

The 5 Most Common Hardship Scenarios to Use a Letter of Hardship

Few people get to go through life without worrying about money. At some point, nearly everyone has experienced some financial hardship, be it through job loss, medical bills, a natural disaster, or just bad luck.

When it happens, you have to decide who to pay first, who you can postpone, and how to feed your pets. You also want the hardship to have the least amount of impact on your credit rating. Most lenders and government bodies are willing to work with you if the worst happens, and the best strategy is to communicate clearly to them what has happened to you.

Using a letter of hardship is often the best way to communicate your situation to your bank, mortgage lender, or any other entity to whom you owe money. Although most creditors are willing to help their customers, they are picky about what constitutes a financial hardship. Let’s take a look at some scenarios in which a letter of hardship would apply:

Changes in Income or Expenditure

Have you had your pay cut or just had a baby? Maybe a roommate moved out without paying their share of the rent, or your car engine died? These unexpected changes can wreak havoc on your finances and cause real problems for you and anyone who depends on you.

If you’re like many Americans, you might not have enough savings to pull you through until your situation is corrected, so this may be a scenario in which to use a hardship letter.

Changes in Employment Status

One of the most demoralizing life events is the loss of employment. It can be a blow to your self-esteem as well as a shock to your bank account. If you’re lucky, you may receive a severance or referral to another company, but often it’s just you left wondering what’s going to happen to you.

You also may have had your work hours cut, or had your position downgraded. The result is the same: a seemingly permanent loss of desperately needed income.

Life Events

Sometimes a death in the family can cause terrible chaos if the deceased left significant debts or other financial responsibilities to their survivors. They may not have left enough money for funeral expenses.

Relationship breakdowns such as divorce or separation can lead to significant hardship for one or both parties since their living arrangements are likely to change. Moving to a single income from a combined income is most certainly a financial hardship.

Injury or Illness

These can cause unmatched upheaval in anyone’s life. Small injuries won’t significantly affect a person’s ability to make money, but more extensive injuries such as loss of limbs, car accidents, or head injuries could easily constitute a financial hardship.

The same goes for illness. Even people with the best genes in the world can get sick and incur hefty medical bills in a hurry. If you must pay for your care out of pocket, you’re going to have a bad time.

Natural Disaster or Emergency

It’s hard to say which of these occurrences is the worst, but when the world itself causes you harm, it feels disastrous and can raze your entire life. Depending on where you live, you could fall victim to earthquakes, hurricanes, tornadoes, and blizzards. Flood damage from these storms destroys homes, businesses, and roads.

Creditors are generally very understanding under these circumstances, but it is still a good idea to assume they won’t be and put together a letter of hardship.

What’s In a Hardship Letter?

Hardship letters are meant to request a particular favor from your creditor. You are asking for a deferment or new, temporary terms outside of your original agreement.

Hardship letters contain specific information about your circumstances, how they changed, how your creditor can help you, and how you are helping yourself out of your situation.

Here are some qualities of a good hardship letter to follow if you need to write one:

Be concise – Keep it to a single page. Don’t take up two paragraphs talking about the specifics of your family and pets. Use two or three sentences to explain what has happened to you, and leave room on the page for the rest of the information.

Be specific – Tell your creditor exactly how you’d like them to help you. Do you want to defer payments? Do you want to pay half for six months and lower your interest rate? If you give them a realistic baseline, they have something to work with to begin helping you.

Be detailed – Use dates and specifics. If you lost your job, tell them exactly when you started and ended. If you were discharged from the military, say the same and the reason for discharge. Bad things happen to good people; don’t be afraid to be honest with them.

Be realistic about the future – Let your creditor know if you think your situation is going to change, and if so, when it will. You can’t predict the future, but you can have an idea of how long your situation might last.

If You Need Help

If you are in a position where you need to write a hardship letter, you can get help quickly. There are different letters for different situations.

Sometimes the type of creditor will dictate what type of help they can offer you. For instance, a mortgage lender doesn’t want to foreclose, but likely can’t change your interest rate. A credit card company can change your interest rate and payments. Many companies give special treatment to military and first responders.

Take a look at our templates and see if you find a letter that suits your needs. They’re there to help you. Good luck!