Secured debts are financial obligations tied to real assets and include mortgages and auto loans. Other secured debts, such as federal student loans, carry a guarantee of payment from the federal government. When a debtor defaults on a secured loan, the creditor has the right to seize any property tied to the debt. Preventing default on secured loans begins with a debtor being as proactive as possible. The longer he waits, the less options are available.
Contact the Lender
Contacting your lender should be the first step in obtaining help for your secured debt. Keeping your lender apprised of your financial situation can allow some breathing room in making up for missed payments before collection practices begin. Your lender may also be able to temporarily suspend your payment obligations if you meet financial hardship requirements or allow you to miss a monthly payment by adding to the end of your loan agreement. This could provide you with enough time to get your finances in order and allow you to begin making normal payments again.
Consolidation Loans
A consolidation loan may be a smart financial move for some forms of secured debt including federal student loans. A consolidation loan pays off multiple loans of the same type and combines the debt under a single loan. This decreases the number of payments a debtor is required to make each month. In the case of student loans, a consolidation loan usually lowers his monthly payment obligations and locks in the loan's interest rate. This could save the debtor thousands of dollars over the life of the loan. Other forms of secured debt, including mortgages and auto loans, may not be eligible for consolidation.
Loan Modification
If you are in danger of falling behind on your mortgage payments, you may qualify for loan modification through the Making Home Affordable Modification Program. Loan modification can lower the interest rate as well as adjust the balance of your mortgage if you owe more than the home is currently worth. According to the Federal Trade Commission's website, you may qualify for a mortgage adjustment if you owe less than $729,750 on your first mortgage, your mortgage was created before January 1,2009, your payments on your first mortgage are more than 31 percent of your current gross income and you are currently experiencing financial hardship due to the loss of a job or excessive debt.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often a consumer's last available option to find help with secured debts and retain possession of property including a home or business. This form of bankruptcy allows a debtor to restructure his financial obligations under a court-approved debt management plan. As long as the debtor makes timely payments in accordance with the plan, he retains possession of his property and his creditors are legally barred from pursuing collection practices against him. Once the plan is completed, his mortgage payments and other secured debt obligations may resume payment as normal.
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