What Is a Hardship Letter?

A hardship letter to a creditor lays out the financial circumstances that have made it challenging for you to continue making your monthly payments. The purpose of the letter is two-fold: You want to not only provide your lender or creditor with details of your hardship, including how and when it started and when you expect to recover, but also propose a mutually beneficial solution.

What Qualifies as Financial Hardship?

A hardship letter is a way to express to a creditor that you’re facing financial challenges and seeking flexibility or changes in your terms from your lender or creditor. But what constitutes a hardship? As a general rule, creditors consider a financial hardship to be an event or circumstance that is beyond your control, such as:

• Loss of employment
• Reduction of income or work hours
• Job transfer
• Military transfer or deployment
• Divorce or separation
• Death of a spouse
• Medical expenses stemming from a severe illness or injury
• Natural disaster

How to Write a Hardship Letter

When writing a hardship letter, aim to be open and honest with your creditor while maintaining a just-the-facts approach. Propose one or more solutions they can provide that would help you regain your financial footing and repay your debt. Your hardship letter should include the following essential steps:

Write an Introduction

Begin your letter by stating your name, account number and the reason for your letter—to request financial assistance. For example, you might start off by saying something like: “To whom it may concern, My name is (your name), and I’ve been an account holder (account number) for (number of) years. I am requesting financial hardship assistance with my (account type; mortgage or credit card, for example) account.”

Detail Your Hardship

In a straightforward manner, explain what caused your current financial struggles, whether it is a job loss, divorce, medical emergency or another unexpected hardship.

Highlight How You’re Being Proactive

It’s essential to show the steps you’ve already taken to address your financial situation. Example: “For the past two months, I’ve cut all nonessential spending from my budget, sold personal items and begun working as a ride-hail driver. I’ve used the proceeds to make partial payments on my outstanding debt.”

State Your Request

The most critical component of your hardship letter is your request for financial assistance. As such, clearly specify exactly what it is you’re seeking, such as a temporary pause in payments, a payment plan or a loan modification. Emphasize that the plan of action you suggest is necessary to restore your financial stability and ensure the repayment of your debt.

Provide Assurance of Financial Recovery

If you’re confident you’ll bounce back financially soon, let your creditor know. Example: “If you can grant my request to pause payments for three months, I’m certain I can pay off my emergency medical bills during that time and then resume my regular monthly payments in full.”

Submit Supporting Documentation

Provide supporting documents along with your hardship letter to help prove the legitimacy of your claim. Depending on your situation, you might submit documents such as an unemployment notice, medical bills, military orders or a divorce decree. It’s also helpful to provide verification of all sources of income (paystubs, W-2s and 1099s) as well as account statements to show your current financial status.

To avoid damage to your credit, remember to continue making payments while you wait for your creditor’s decision.

How to Move Forward After Financial Hardship

Once you’re able to return to solid financial footing and put this difficult period behind you, it’s wise to take steps to prevent future financial hardships, such as:

Creating a Budget

Budgeting gives you control over your finances by knowing exactly where your money is going. Ideally, it helps you avoid overspending and creates room for automatic savings for emergencies, retirement and other goals.

Building an Emergency Fund

Make it a goal to save at least three to six months of living expenses in an emergency fund, which may be enough to sustain you if you face a financial crisis.

Paying Down Debt

High-interest debt from credit cards, personal loans and other forms of credit is a drag on your finances. Strengthen your financial health by paying as much as possible toward your outstanding debts. Consider following a debt repayment strategy like the debt snowball or debt avalanche method to simplify the process and help you stay on track to zero out your debt.

While improving your financial health, don’t forget about your credit, which determines your eligibility and interest rates for mortgages, auto loans and other important purchases. Regularly review your credit report and credit score for free with Experian to see where your credit stands and identify potential areas of improvement. Also, consider signing up for free credit monitoring to stay on top of any credit score changes and receive suspicious activity alerts.

Contact O1ne Mortgage for Your Mortgage Needs

If you’re facing financial hardship and need assistance with your mortgage, O1ne Mortgage is here to help. Our team of experienced professionals can guide you through the process and provide the support you need to regain your financial stability. Call us today at 213-732-3074 for any mortgage service needs. We’re committed to helping you find the best solution for your situation.