How to Adjust Long-Term Debt
A long-term debt is one that takes more than a year to pay off. Examples include mortgages, student loans, car loans and personal loans. If you have a long-term debt you are struggling to pay off, a debt adjustment may help. Whether the debt is individual or corporate, adjusting it simply means changing the terms of the initial loan agreement in some way. There are different means of adjusting debt, ranging from coming to a new agreement with your creditor to filing for bankruptcy. Your original agreement and the laws in your state play major roles in determining how you can adjust your debt.
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Instructions
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Check your loan agreement. Some creditors have a process you must follow to adjust your debt. They may have specific qualifying circumstances that allow you to easily postpone or reduce payments, apply for interest rate modifications or otherwise change your agreement so you can stay current on the debt. For example, many student loans have clauses that allow you to reduce payments if you lose your job or to have part of your loan forgiven if you work in certain industries.
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Decide what kind of debt adjustment you need. If you need to reduce your minimum payment, determine how much you can afford to pay so you can make an offer to the creditor. If you want to adjust the total outstanding amount on the debt and make a lump sum payment to settle the debt, figure out what size of settlement offer you can make.
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Call the creditor and explain your circumstances. The creditor's representatives can discuss with you any formal debt adjustment programs they have, such as a reduced payment plan or settlement. Let them know how much you can afford to pay and try to come to an agreement to adjust the terms of the debt so you do not default.
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Declare bankruptcy. Chapter 13 bankruptcy allows you to adjust your personal debt so you have longer to pay it off. Under Chapter 13, you will have up to five years to repay your long-term debts, but the exact amount of time you have and the specifics of your debt adjustment will be partially determined by your state's laws. For debts that you are unlikely to pay off within five years, the bankruptcy period is spent making reduced payments so you can get your loan back on track. To qualify, you must prove that you earn income and can meet the new terms of the debt after the adjustment. The exact guidelines differ between states. Businesses that need to adjust their debts through bankruptcy must file under Chapter 11, which offers similar protection.
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Tips & Warnings
Certain debt adjustments, such as debt settlement plans and bankruptcy, can have a negative impact on your credit report.
References
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