What to do if we are unable to pay off the loan and our financial future is in black? What steps can we take when a bank debt department employee contacts us? How to prevent the lender from terminating the loan agreement?
Most of us, when deciding to take out a loan or credit, positively assess our debt repayment prospects. The bank perceives the situation in a similar way, verifying our creditworthiness and then deciding to make funds available to us. Of course, we should take into account the possibility of circumstances that could lead to a loss of financial standing, such as loss of income source or illness, but this scenario usually seems unlikely to us at the time of signing the loan agreement.
You don’t repay the loan – what does the bank do?
The standard procedures used by the bank when subsequent loan installments do not affect the repayment account, first include sending telephone or written notifications, reminders and requests for payment. The next step is usually taking debt collection activities by a special bank unit. Judicial enforcement with the participation of a bailiff takes place in turn at the end when the actions indicated are ineffective. The effect of this procedure is also an avalanche increase in the outstanding amount, as criminal interest and high debt collection fees are added. It is also worth remembering that traces of the ongoing proceedings will be permanently recorded in the reports of the Credit Information Bureau (BIK) and other databases collecting data on repaid liabilities, which will often prevent us from incurring them in the future.
How to solve the problem with repayment difficulties?
Despite the increasing stress and uncertainty, you should quickly take action and give up passive observation of the situation and avoid contact with the bank. There are many solutions, and the indicated “black” scenario is unwillingly seen not only by us, but also by the banks themselves, which, as a result of enforcement actions, recover only part of their receivables and are often interested in a settlement solution.
From the very beginning, let’s get acquainted with the loan agreement and prepare for further contacts with the bank. In the first place I also suggest analyzing your home budget. It is worth checking with a pencil and a piece of paper in hand whether there are expenses that we are able to give up and to obtain additional funds for repayment of installments. Sometimes even small expenses generate high monthly costs.
A solution often used when we pay off several different liabilities, often at different banks is their consolidation into one liability, i.e. combining several installments into one. A consolidated loan, usually at a lower interest rate, may be easier to handle, especially if we extend the repayment period.
It is worth checking whether it is possible in our case to take advantage of “credit holidays”, i.e. temporary suspension of repayment of the entire installment or a part thereof. This solution is at a premium and gives you a kind of “financial breath”, especially for people with irregular income. Some banks allow this option as part of the standard procedure, while others may apply for individual consent.
It is also a very simple solution to apply to the bank for extending the loan period. The bank’s consent usually depends on the age of the borrower and requires the signing of an annex to the contract, but often allows for a significant reduction of the installment.
A change in the repayment system will also lower the monthly installment. If we chose decreasing installments, then “switching” to annuity installments will also reduce monthly payments. Such a change may require paying for the annex, but it may reduce the installment by up to several percent.
The disadvantage of each of these solutions is the increase in total interest costs. Credit holidays or extending the repayment period means that over the entire lending period our loan will cost us a bit more. However, in the event of problems with repayment, priority should be to maintain financial liquidity and we should strive for it at all costs, even at the cost of increasing the value of interest paid.
If you lose your job or another source of income, it is worth checking whether, by signing the loan agreement, at the same time you have not been covered by insurance against the risk of loss of income. It is true that only in a few cases it is possible to pay benefits in this respect, but it is a mistake not to check whether our situation this solution is applicable.
What to do when the situation is more serious?
In the case of loans secured by a mortgage on real estate, it is worth considering the possibility of selling the property. In this case, there is a much greater chance of covering your obligations with the sum obtained from the sale of real estate than in the case of delaying this decision and the forced sale of real estate by a bailiff. This operation can be carried out on your own, necessarily before the repayment debt arises, which would prevent sales. Some banks offer assistance in this area through dedicated programs.
Already in the case of the first request for payment by the bank, it is worth meeting its representative and discuss the possibility of restructuring the loan. The conclusion of the restructuring agreement and determining its conditions depends on the positive decision of the bank, which is made after the debtor’s creditworthiness. The proposed solutions, however, usually include setting new repayment rules, canceling part of the debt or extending its repayment period.
In the event that the above-mentioned solutions are insufficient, the possibility remains functioning in many countries, and the Polish bankruptcy and reorganization law was introduced on March 31, 2009, i.e. consumer bankruptcy. It is defined as “the reduction or cancellation of the liabilities of a natural person who does not conduct business in the event of an unpaid insolvency”. On December 31, 2014, the amendment to consumer bankruptcy entered into force, significantly liberalizing the premises for bankruptcy. This change has facilitated this complicated procedure, which, however, still requires judicial proceedings and is not widely used.