A hardship letter is a letter written to request leniency or special consideration in the case of financial difficulties. This letter explains to the lender your present circumstances, your efforts to get out of the circumstance, and your inability to come out of the situation. These letters focus on three areas:
If you are unable to make credit or mortgage payments, or if you are unable to cover a particular debt, then a hardship letter is a convenient way for requesting leniency. This letter can protect you from the foreclosure of your assets.
1. Circumstances that warrant a hardship letter
2. A financial hardship letter
3. How to write a hardship letter
4. 8 tips for writing an effective hardship letter
5. Mistakes to avoid
Before writing this letter, you must determine whether your present circumstance constitutes a hardship. There has to be an event that makes it difficult for you to cover your debt or clear your mortgage. Some of the instances that may qualify include:
These letters can also help in other instances such as seeking leniency for medical bills or credit debt. A student who cannot afford higher education can use this letter to request for a scholarship, grant, or reduced tuition fee.
The intent of this letter is to inform the lender concerning your financial distress. This letter can be used in a variety of settings, for instance, requesting a loan modification, a short sale, or preventing foreclosure. Even if you have a lawyer presenting your case, a hardship letter strengthens your case to your lender.
Sample 1
[Your Name]
[Your Address]
[Your phone number]
[Your email]
[Date]
To [The name of the Lender]/To Whom It May Concern
[The Firm]
[Address]
[Lender’s Contact]
RE: Modification/forgiveness/cancellation/reconstruction of Debt [mortgage, credit card, loan repayment]
I am writing to inform you of my present financial hardship and my willingness to resolve the pending debt issue.
My problems began when I lost my job on 16th March 2015. As a result, my primary source of income was cut off, leaving me unable to cater the excessive expenses or the pending debt. Since then, I have attempted to apply for other positions. I also attempted to start my own business of a mobile restaurant with some $20000 that I had saved. However, trying to be an entrepreneur while allocating $xxxx a month to daily expenses and $xxxx to my children’s education left me in a financial hole.
It is not my intent to avoid my responsibilities. I am hugely embarrassed to be in this position in the first place. I am willing to allocate $xxxx per month to cover the debt. I hope you will find this suitable. I know that we both want to avoid (foreclosure, repossession). Please contact me so that we can discuss the options available.
Regards,
[Sender’s Name]
Sample 2
[Your Name]
[Your Address]
[Your phone number]
[Your email]
[Date]
To [The name of the creditor]/To Whom It May Concern
[The Firm]
[Address]
[Creditor’s Contact]
Dear [Get the name of the individual in charge],
RE: RECONSTRUCTION OF MY MORTGAGE PAYMENT PLAN REF NO: 6785-03
This letter intends to inform you of our current financial hardship and to request you for a mortgage modification.
Due to the death of my husband, I have had to support my family with only one stable income of $500,000 annually. My husband’s income was an annual $817000. With both incomes, we were able to comfortably cater for a mortgage, child care expenses for our lastborn son Madison, tuition fee for our first-born daughter who just started UCLA, and education expenses for the second born. However, with the death of my husband, I am left to cater for all the household expenses.
My first-born daughter has had to apply for grants and a part-time job as a waitress in a bid to survive our financial hurdle. However, aside from me, no other adult can help us weatheither the storm. My husband’s only surviving relative is his grandfather. He is currently in a nursing home which costs and takes up $16,000 a month. Also, my mother is in nursing care and takes up the same amount in care expenses. During our transition to a simpler lifestyle, we have accumulated $600,000 in credit debt. We are no longer using our credit cards and have had to switch to a strict budget.
While we fully purpose to clear our debt, we need some relief. We desire to keep our home. However, we need your aid in this endeavour. We genuinely hope that you will work with us as we seek to gain our financial footing.
Sincerely,
[Your name]
A hardship letter is mandatory if you want the lender to consider you for leniency, loan modification, or foreclosure prevention. When writing the letter, try to be as honest as possible and provide the right details. Assume that the lender is aware of the reasons behind your default in payment. Furthermore, it would help if you informed the lender of how you plan to make future payments should they approve your request for a loan modification. Consider using the examples to help you write a convincing letter. Alternatively, you can request the assistance of an attorney.
If you are on the brink of bankruptcy and are going through a painful experience, then you need to share this unpleasant experience with the creditor. Be concise and evocative at the same time. Inform the creditor of the unfortunate events and the impact of these events. Do not just say that you borrowed money. Instead, inform them that you have a credit debt of $760,000, you are now living in your grandmother’s basement, and you recently borrowed $10,000 against your visa to make payments for the last 4 months.
Describe the severe as well as the instances that you may think are subtle. If your vehicle needs an overhaul, or your dog has cancer, and the vet bills are excessively high, if you have had to work nights just to put food on the table or have had to walk your neighbour’s dog to make ends meet, then include this in the letter. Paint the most empathetic picture that is humanly possible but in an honest way.
The first thing to consider is what action would you like from the creditor. What are you hoping to convince them to do? You may be asking them to suspend the accrued interest on a loan for the past few months or to adjust the interest rate. Alternatively, you may be asking them to adjust the monthly payments or convincing them of an alternative settlement option. Whatever your objective is, keep it in mind as you draft the letter.
The second objective to consider is explaining your financial turmoil. Be honest and plain about the issue. The issue may be purely economic, or it could be due to a temporary setback from personal events, for instance, a divorce.
A point to remember as you write the letter is to try and not make excuses or cast blame. Making excuses may not convince your creditor that you are willing to meet a settlement on the repayment of the debt. Describing your circumstances helps you to explain what is going on.
1. Make the letter concise
Do not write pages explaining your hardship. Keep it short and concise, only stating what is relevant and what convinces your creditor to reconsider. An example would be saying:
I am writing to you because I have been unable to resume work due to an injury. The injury resulted in unavoidable expenses that have severely drained my emergency savings. I am aware that I have lagged on paying the debt. However, I have healed from the injury and would be resuming work this coming month. I believe I can continue making monthly payments on the loan if you make adjustments to the repayment.
This is a brief paragraph that explains the cause of your financial hardship. It also communicates your willingness to clear the debt. However, if the difficulty is due to a permanent event, you can explain how this event has impeded your ability to pay for the loan. For example:
Due to the recent loss of a spouse, there is only one income supporting my household. As a consequence, I have lagged behind on my mortgage payment and sunk into credit card debt. I am currently receiving advice from a non-profit debt counsellor to determine the appropriate course of action in debt management. I am confident that with your help I can repay this debt.
Focus on explaining what caused your default in paying the mortgage or debt. If there are multiple reasons, then state them in several short paragraphs. Avoid long sections.
2. State your response to the hardship
You need to describe the steps you have taken in response to the difficulty. Be honest and clear. Also, explain how your efforts are not enough for you to fully resolve the financial crisis. Remember that the letter intends to convince the creditor that you need their help. You can follow up the paragraphs stated earlier with a paragraph that reads as follows.
After the death of my wife, I altered my lifestyle to accommodate a strict budget. I have made cuts on almost all areas of my life, and I still lack enough financial resources to meet all my obligations. Although my income and expenses have stabilized after the burial, I feel that a reduction in payments for a period of 7 months will aid me in making regular payments henceforth.
3. Clearly state what you want
After explaining your hardship and your efforts to come out of the situation, you should indicate what you want from the creditor explicitly. Do you want a lower interest rate? You can say, “I need a reconstruction of my mortgage to get a lower fixed, interest rate”. Craft the purpose of the letter in a manner that compels the lender to discover more about you. Another example would be stating:
I need a reduction in interest rate so that I can afford to make monthly payments. I would like to discuss this matter with you as soon as possible so that we can come up with a solution together.
4. You can include enclosures
Supporting documentation makes the letter more convincing. This can include copies of medical bills or a divorce document. Make sure to add a sentence or two indicating that you have attached supporting documents.
5. The conclusion
Restate your intent for writing the letter in the end. Summarize your purpose; for example, a loan modification would help you to make monthly payments.
You should consider the highlighted points when crafting your letter. Also, bear in mind that the creditor will make the final decision to modify the loan. Therefore, rather than sounding as if you are insinuating that your financial hardships are a result of the creditor, state the facts and let the creditor judge the situation on their own. Also, express your interest in communicating further with the creditor and in continuing your working relationship with them. Finally, make sure your letter is one page so that the creditor can quickly go through the letter.
Here are a few points to remember when writing a hardship letter:
Writing a hardship letter is a personal task. However, it would help if you did not shy away from seeking the help of a financial coach or a non-profit debt counsellor. A professional will help you to determine the right course of action and the right way to convince the creditor. If you are struggling with a mortgage, then a housing counsellor will advise you on how to request for a reduction in mortgage payments. Do not take this journey on your own. Remember that two heads are better than one.
Writing a hardship letter can be a depressing task. Many people never realize how serious the situation is until they start describing it in black and white. It may appear counterintuitive but do not attempt to state that you are capable of clearing the pending debt or that you foresee a future where you can cover all the unpaid interest. Your creditor is likely to accept this option and refuses to settle for another alternative. Instead, you can request for a seller contribution or a short sale. However, if you are comfortable in your efforts to meet the payments you can state it as a viable solution. Of course, you can indicate that you have explored other financial avenues. However, make it clear that you are at the end of the road and that there is a likelihood of the situation getting worse. Also, make it clear that the circumstance will not improve unless the lender helps you out. Remember that the creditor’s only priority is recouping their loan. Communicate your willingness to help them in this endeavour.
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