Need to know more about income failure, loans and debt problems?
If a household is affected by a temporary or short-term income decline, it may be enough to reduce monthly expenses for a period of time. There is a clear distinction between income failure and debt problems, just as there is a distinction between short-term problems and long-term problems in both categories. The failure of income may be due to temporary unemployment, illness or other affecting income for a period of time. In the case of temporary problems, it is important to adjust the expenditure to the changed income for the current period. Remember that the change should not increase debt.
All repayment of the debt stops
Term deferral is not the same as installment deferral. At term, all repayment of the debt stops, while interest rates continue to run and the loan grows from month to month. If installment deferral is paid, the interest rate on the loan remains the same balance throughout the deferral period. Deferral of installments may in some cases not be enough to make the calculation go up. In such cases, it is also possible to negotiate the interest rate down, for a period or permanently. If this also does not go together, it may be possible to freeze the interest rate, ie 0% interest is calculated during the period. In case of long-term income failure or if the debt is higher than the serviceability of a normal income, other, more permanent solutions must be chosen. If the problem is permanent and the interest rate on the mortgage is high, applying for refinancing in the municipality may be a solution.
Debt is a mixture of home loans and other debt
The same applies if the debt is a mixture of home loans and other debt. Then, refinancing loans can be an important tool in debt reduction negotiations. Typically, the interest rate on these types of loans is below the normal market rate on mortgages. In case of debt problems of a more permanent nature, it may also be necessary to have parts of the interest rate deleted or the entire interest rate deleted. In many cases of serious debt problems, debt settlement will be the only possible solution; debt settlement with full or partial deletion of both interest and repayments.
Debt arrangement structure and implementation
The preparations for the Debt Settlement Act state something about the purpose of the law and something about the considerations to be taken. It states, among other things, that the law should provide debtors with an insurmountable debt burden the opportunity for a fresh start, without impairing the creditors’ right to payment more than necessary. Furthermore, it is important that the scheme does not weaken the ordinary payment morale or challenge the prevailing legal consciousness in society.
The preparations also mention something we should keep in mind: that the bulk of the claims that may be written off through the act of the law would in any case be lost to the creditors because of the debtor’s position. This is a basic principle that must be at the bottom of all advice and negotiation with regard to debt settlement. How this will work in practice, we shall now look at an example.