Financial hardship often means something different to a person experiencing it and the businesses and organizations it affects. While you might view it as any situation in which you can't pay your regular monthly bills and still purchase food and clothing, the government, your creditors and your employer often view a financial hardship situation much differently. Although understanding what constitutes a financial hardship is vital to a filing a successful claim, many people find this to be the most difficult part.
Research the Creditor's Requirements
Most often, it's the creditor, not you, that decides whether you're experiencing a financial hardship. To increase the chances of filing a successful claim, research the creditor's specific requirements. If the hardship relates to a request for a distribution from an employer-sponsored retirement plan, a mortgage loan modification or a student loan deferment, the criteria must be in writing as per government regulations. However, credit card companies usually don't publish hardship criteria. In this case, you'll need to contact the company and discuss your situation.
Provide Documentation and Evidence
It takes more than just your word to persuade the government or a creditor that a hardship situation exists. In most cases, you'll need to provide extensive credible evidence about your income and expenses. While documentation requirements may vary slightly by lender, these often include pay stubs, copies of tax returns, bank statements for the past two to three months and copies of credit card, loan and property tax statements. Supply copies, rather than the original documents, for whatever the creditor requires.
Fill out Forms
Government agencies, mortgage lenders and employer-sponsored retirement plans ask you to fill out and submit a financial hardship application form. . Follow the creditor's instructions for filling out and submitting forms exactly. For example, while the form you fill out to request a financial hardship for a federal student loan is a government form, the instructions say to submit it to your loan holder. In addition, some will require you to fill out and submit more than one form. For example, a mortgage modification application requires that you submit a Request for Mortgage Assistance application and a tax return authorization form allowing your lender to access your tax returns. In contrast, a request for financial hardship distribution from your 401(k) is a simple, one-page application.
Apply via a Letter
A credit card company may not have an application form, which will require you to speak with the company directly or write a letter. In most cases, you will not only claim a financial hardship, but also propose a settlement offert. With a credit card company, claiming and following through on a financial hardship request is more a process of negotiating than of following specific procedures. Increase your chance of success by stating your case using clear and objective language and by acting in a professional manner.
- IRS.gov: Retirement Plans FAQs regarding Hardship Distributions
- Wells Fargo: Wells Fargo Income Document Requirements for the Home Affordable Modification Program (HAMP) and Home Affordable Foreclosure Alternatives (HAFA) Program
- Home Loan Learning Center: A Guide to HAMP Loan Modifications
- MakingHomeAffordable.gov: Request a Home Affordable Modification
- U.S. Department of Education: Economic Hardship Deferment Request
- Discover: Payment Assistance
- Cyclone Drilling: QP/401(k) Hardship Distribution Request Form