What can happen to my home? My car? My possessions?
These are common questions that arise for debtors whose loans are secured by their personal property.
A secured loan is a loan that attaches to a piece of your property – most commonly, your home or your vehicle. In the event you default on the loan, your creditor has a right to seize your property. This is a contrast to unsecured loans, which don’t require you to place your property on the line. However, lenders generally won’t loan you money without asking you to offer collateral unless you have a strong credit history. As such, secured loans are often good options for debtors with lower credit scores, as they may not be able to obtain an unsecured loan. The possibility of seizing your collateral gives creditors the assurance that if you default on the loan, they won’t be left empty-handed.
But the question remains: If you already have a secured loan and you’ve either defaulted or are at risk of missing payments, can you seek debt relief? What is your recourse if you’ve already obtained – and defaulted on – a secured loan?
In this article, we will explain your debt relief options if your loan is secured by your personal property.
Seeking Debt Relief
Option 1: Pay Off the Loan
First and foremost, if you have the means to pay off the loan, this is your best choice and will assure you get your property back. Try to collect as much of the loan balance as you can, pay that, then contact your creditor to negotiate a payback schedule. This choice will have the lowest impact on your credit and will ensure you don’t have to fight to keep your property.
Option 2: Contact a Debt Relief Company
Work with a reputable debt relief company to try to consolidate your debts, so you can pay them back on a reasonable and feasible schedule. A debt relief company can also work with you to negotiate down the total amount you owe, so you can pay your creditors more quickly and save your collateral.
Option 3: Write up a Debt Management Plan
This type of plan will not risk the loss of your assets. Rather, it allows you to build up a positive credit history, scores you lower interest rates, and helps you survive month to month as you work to slowly budget and pay down your secured debt. Contact a credit counselor to learn how this option can help you dig yourself out from under your debts without losing your assets.
Option 4: Pay the Principal Only
If you unexpectedly receive a windfall like a large paycheck, tax return, gift, or other windfalls, immediately apply it to your loan principal. This will help you pay the total amount due much faster, reducing your total interest owed and chipping away at the ever-increasing principal amount.
Option 5: Contact Your Creditors
If you’re struggling to make your monthly payments, reach out to your creditors to keep them informed about what is going on. Ask them if they can make arrangements to ease your debt burden. In many cases, you may be able to qualify for a hardship program that could relieve some of your debt and lighten your financial load.
Option 6: File for Bankruptcy
This may be a last resort option, but nonetheless, it can help you build your credit back up and clean your slate. When you file for bankruptcy, you declare to a court that you are unable to pay your debts and that you seek to have your debts discharged in a formal legal proceeding. Bear in mind, though that, in many cases, choosing this option will subject your assets to levy by your creditors, who will line up to take what they are owed to satisfy their outstanding debts. It will also drastically impact your credit report. Nor is it a guaranteed success. Still, it is an option that can help you clear your slate and start fresh.
Resolving Your Secured Loans
Seeking debt relief can be intimidating, especially when your personal property is on the line. If you choose to pursue debt relief options, it’s vital to know and understand your options and to be your own advocate in selecting the best path for you.