A loan is an obligation, but not damnation

Question: What do I do when I am a victim of the pandemic and cannot anymore pay my loan on time?

Answer: The first thing to do is to smile. Smiling, especially when you do it with your eye and mouth muscles produces endorphins that will relax you and prime you for the following steps you need to take.

Next, acknowledge you have a debt problem. You already did that so, good job. But get your spouse involved as well, if you do have a spouse and that spouse is not already involved.

Unlike you, many refuse to realize their burgeoning debt problem and simply assume that things will work themselves out or that the good Lord will fix their debt issues for them (i.e. which some call “bahala na”). Take note that bahala na is said to have come from Bathala na, which means I will do my best and God will do the rest.

Still, others keep on borrowing and usually from institutions or individuals who charge higher interest rates or ask for shorter repayment periods.

Negotiate for a restructuring of your debts especially when external collections agencies are the ones contacting you. At least for credit cards, there is a Bangko Sentral ng Pilipinas (BSP) regulation that states that if a bank’s credit card receivables are more than 180 days past due, such receivables should be written off. But banks will not just give up that easily. Although they should not be spending money in collecting such past dues, they hire external collection agencies to do the collecting work for a success fee.

In an advisory to the public dated April 29, 2015, the BSP says that down payments imposed by collecting agencies alone are not required prior to the grant of restructuring. Note also that restructuring payments, according to the BSP, must be crafted with the repayment capability of the borrower in mind.

BSP Circular 855, Series of 2014, states that: “FIs (financial institutions) shall adopt appropriate and cost-effective workout, restructuring or remedial management policies, processes and strategies to revive and recover problem credits. The strategies shall take into account the specific condition of the obligor and the FI’s interest, and shall be approved by the board of directors or management, in accordance with internal policy.”

Refinancing with new creditors is possible only if you have the capacity to repay and your name is not yet in the negative file information system (NFIS) of financial institutions. When you are significantly past due, your name will land in the NFIS.

Also, check out https://youtu.be/sX5bUduBqs8 for the Interbank Debt Reduction Program (IDRP) of the Credit Card Association of the Philippines.

Note though that under IDRP: “Debtors who wish to avail of the program must have credit card accounts that are at least six months old, with an outstanding balance of at least P10,000 per card and total credit card obligations of at least P100,000 for all cards. If your bank is a participant of the program, acceptance is at their discretion once the proper documents are submitted. Once you are approved, you will not be able to use any of your credit cards, whether they are delinquent or not.”

Third, when it comes to restructuring, request for an amortization that is lower than what you can truly afford. This will allow you leeway in negotiating. Expect creditors to initially deny your request. Just write them again. Write to both your lenders and their collection agencies. Make sure they receive your letters by sending them via courier so that the persons who received your letters, including the times and dates are recorded. Do not rely on SMS, voice conversations or email alone.

Fourth, pay more than the agreed amortization so that you can quickly zero out your debt. Do not recast future amortizations any further when you accelerate your payments. Ask for a copy of the promissory note and make sure that you document all of your communications with your creditors. Documentation gives you more evidence of not wanting to run away from your debt. This will come in handy especially when you had issued post dated checks that may have already bounced or been issued stop payment orders.

Fifth, sell some assets to help reduce your debt obligation and strictly follow a budget.

Do not be angry with or afraid of your creditors and collectors. They are just doing their job. Even if they are being nasty to you, forgive them already before talking to them. Talk to them calmly about your proposal and tell them with all sincerity that your proposal is all you can offer.

Know that lenders will use the courts only as a last resort, especially if your loans are sizeable. But be aware also of the Small Claims Court where cases against nonpayment of amounts up to P400,000 may be filed and where decisions are final, executory and unappealable.

Also, filing for insolvency should be your last resort as it is expensive, time consuming and does not guarantee you will be rid of your debts.

You have an obligation to repay your debt. But being past due does not give a license to creditors to treat you like you are trash. INQ

Send questions via Asked at “Ask a Friend, Ask Efren” free service at www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram, and Facebook.

Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. To consult with a YAMAN Coach™, email [email protected]. To learn more about personal financial planning, attend the 99th RFP Program this January 2023. To inquire, e-mail [email protected] or text at 09176248110