Contrary to popular belief, creditors do not randomly sue debtors. In all actuality, they provide them with a 180-day period to take some action before charging off the account. During that time, borrowers can choose to make a payment or seek the assistance of an Illinois debt settlement attorney. If one decides to do the latter, he or she will quickly be made aware of their options.
Before taking drastic legal action, creditors will often consider loan modification. Although foreclosure and repossession of an individual’s property may be a more surefire way of collecting a debt, it may not fully recoup the owed amount. Through loan modification, they still have an opportunity to collect fully on the loan and the debtor is given another chance to make on-time payments. Here are four ways loan modifications can stop a default.
Forbearance is when the creditor temporarily reduces or suspends loan payments. This agreement is under the condition that the individual will repay the difference when the forbearance period ends. This loan modification is best for those experiencing a temporary hardship and will likely be able to afford payments when they recover from their situation.
Term extension merely extends the loan repayment period. The creditor can choose to add years to the repayment schedule to give the debtor a chance to successfully pay off the loan. Payment value does decrease as a result, as the cumulative interest will likely increase.
Interest Rate Reduction
The creditor can also choose interest rate reduction as a loan modification option. They can either temporarily or permanently lower the interest rate on a loan. This lessens the payments and decreases the overall repayment amount. The money creditors lose from reducing the interest is oftentimes added to the principal of the loan.
Principal reduction is the most unfavorable option for creditors as it decreases the overall value of the loan. Lenders can choose to write-off a portion of the loan in hopes that the individual will repay the remaining balance. This is a risky move on their behalf as there is still a possibility that the person will not repay the lower balance.
Loan modification is beneficial to both parties involved as it allows the creditors to collect on the debt without putting the debtor under legal pressure. If you are considering loan modification as a debt relief option, speak with an Illinois debt settlement attorney at Benveniste Law Offices. Heather Benveniste has the experience necessary to negotiate with creditors to come up with a debt settlement option most favorable to you. Don’t allow your debt issues to persist without taking action. Contact us today for a free case evaluation.