When a borrower is unable to make repayments on their loan according to previously agreed-upon terms and conditions. A person can be considered “in default” when they have not repaid their loan on time.

The most common example of being in default occurs with the high rate of student debt currently present in the United States. Students who have not repaid their student loans within 270 days (9 months) will receive a letter from their service provider to inform them they have defaulted.

What are the consequences of going in default?

Before any loan can be taken out, an individual will have to sign a debt-related agreement. In the event that you can not oblige to these agreements, the consequences of going in default can be the following:

  • Students can be dismissed from Tax Refunds
  • Your credit score can be tarnished
  • Any form of future wages can be garnished without a court order

The severity of being in default is relatively serious, as this can affect any future endeavors to undertake a new loan for personal or professional reasons.

What steps are taken before going in default?

Before any person can go in default with their lender, the service provider will need to exercise a form of “due diligence.” This entails the service provider, or lender conducting repeated efforts to collect any outstanding repayments.

How to get out of default?

Once an individual has been classified in default, full repayment of the full loan amount has to be made to be considered out of default. There are two ways to get out of default:

  • Loan rehabilitation
  • Loan consolidation

These can be considered by the individual and their lender to reach an agreement on how the lender can come out of default.

Read more: Default process – what should you know?

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