Defaulting on a Loan or Mortgage
When an individual or a debtor defaults in a loan agreement, it means that the debtor was unable to meet all the provisions as outlined in the agreement. Breaking the provisions includes either not paying a payment on time or not paying the full payment. Default can occur on debts such as bonds, loans, mortgages, and promissory notes.
As a result of a default, the lender can make claims against the debtor’s assists in order to get the money or value that is owed.
Often during a default, the lender may give the option of a repayment plan. These plans will often have a negotiated time scale to pay off the debt. Another option is to get advice from a debt counselor or a debt counseling service. They can provide advice and tools to help the debtor. They may also be able to contact lenders and help set up the repayment plan with lower interest payments.
Debt counseling can also help give information on consolidation and if it is an option when an individual defaults.
Defaulting on a Mortgage
If an individual defaults on a mortgage, it can add on additional fees and costs on top of what is already owed. Furthermore, it can get reported to credit reporting agencies which ultimately affects his credit score in a negative way. In the most extreme case, it can result in losing a home.
During a default, the lender who manages the mortgage loan account can charge for various default-related services which can include:
• Property preservation services such as landscaping or boarding up broken doors and windows
• Property inspections that ensure the individual is living in and maintaining the property
• Foreclosure costs such as attorney fees and charges for posting or mailing foreclosure notices
Defaulting on a Student Loan
A student loan is considered to be in default if there have not been any payments for 270 days for a monthly payment plan or 330 days for a payment plan that is less frequent.
Defaulting on a student loan can have serious consequences. After a default, the IRS can take an entitled income tax refund and hold onto it under the student loan is paid in full. The government can also garish a limited amount of the student’s wages, up to 15% but no more than 30 times the federal minimum wage.
The government can also take from any federal benefits, such as social security disability or retirement benefits, but not supplemental security income in order to reimburse student loans. Another option is for the government or private lenders right to sue in order to collect the defaulted loans. There is no limit to this unlike other debts.
Some of the options to get out of default on a student loan include
• Paying the loan off
• Setting up a repayment plan with the lender as either a standard, graduated, extended, or income contingent and sensitive repayment plan
• Rehabilitating the loan
• Consolidating the loan
• Payment relief (if qualified)