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Strategies for Creditors Negotiating a Loan ModificationWith the millions of people who have lost their jobs the past few months, creditors face the possibility of an increasing number of borrowers defaulting on their debts. With some clients, creditors will eventually need to decide whether to pursue collection on the debt or offer to modify the loan. Creditors who use debt collection may risk the debtor filing for bankruptcy and receiving little or no repayment if they are not a secured creditor. Negotiating a loan modification can be more beneficial for both sides but may not work with all clients. The creditor must balance receiving some return on the loan without surrendering too much money with the modification.

Should You Offer Loan Modification?

You should evaluate each client individually before deciding whether to approach them about loan modification or accept their offer to negotiate a loan modification:

  • Is the client truly incapable of repaying the loan as it exists?
  • What is the current financial circumstance that is preventing the client from repaying the loan?
  • What is the likelihood that circumstances will change, either for the better or the worse?
  • Is there a lower monthly payment that the client could afford?
  • What is your client’s history of making payments on time?

When modifying a loan, there is always a risk that the client will still default on the debt despite the modifications. The risk may be lower if the client appears to be suffering a temporary setback and has never missed a payment in the past.

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Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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