• Thomas Cecil

What To Do When You Default

Most people want to repay their loans on time and ensure their life goes on smoothly but sometimes, life unexpectedly changes adversely and this causes people to default on their loans (due to external emergencies of health, accident, natural calamities) and this renders them unable to satisfy their personal loan debts, resulting in bankruptcy, thereby transforming into a painful experience for you and your family. Here is an in-depth analysis guide of what to do when the worst happens.

What happens when you default on your loan?

A personal loan is considered officially to be in default about 30-90 days after the last payment due date (also called the grace period). If you are only a week or two late, it might be classified as being “delinquent” and hence you may be charged a late “delinquency fee” of about 5%-10%, and being subsequently late can have negative repercussions on your credit ‘FICO’ score. The bank who owns your loan then sells your loan to a third party debt-collection body/agency which is the one responsible for pestering, the constant calling and getting you to pay up the debt obligation. You are better off if loans are secured because if your loans are unsecured, then the debt company can sue you in court, instate wage garnishments (take a share of your wages), and seize your personal assets if loans have recourse.

What to do after you default?

Hopefully, it doesn’t come to defaulting, but if it does here are some things you must do soon after your default:

  • Contact the lender to communicate your current state and politely request for either a suspension, reduction or temporary deferment of monthly loan payments to work out a new deal that manages expectations better.

  • Contact a credit counselor who can help you better plan and budget your monthly payments, produce estimates and help navigate your financial life. As an alternative you can also download an app to manage such expenses and transactions.

  • Contact a lawyer if the lender has already initiated legal proceedings by serving a lawsuit for you and take the lawyer’s advice on next steps. Just remember that not showing up to court can result in a default judgement in favor of the lender/debt obligation body.

  • Use the full extent of your rights under the FDCPA and CFPB to protect yourself from debt collection agencies that may use aggressive, abusive or intrusive practices to blackmail or threaten you to pay your loans. Contact your lawyer about this and convey to your district Attorney General’s (A.G.) office. Also research different loan rehabilitation and loan consolidation programs Here is an average timeline for grace and default periods although individual banks might have a differ


The best strategy is to not default on your loans by paying your dues on time, negotiating a pre-default failsafe plan and having clear communication with both your lender and (if necessary) your lawyer. Taking these steps can help you make the transition to default to foreclosure, seizure of assets or garnishments less painful.

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