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Most people borrow for use on something that their normal income probably does not permit them to do: purchase furniture, a car, a home, take a vacation, make an investment, a student loan. It's all done in good faith and the lending institution has even conducted a credit check to make certain you can repay the loan. But times change, things happen, a job is lost, a major illness strikes, or some other catastrophe arises that makes repayment of the loan impossible, or at best, extremely difficult. What to do?

Unless you take action, the consequences of failing to repay lenders can be quite unpleasant. Without going to court, they can repossess the security for the loan-for example, the car on a car loan-or, when your bank is the lender, it can withdraw funds from your account. If any debt remains, lenders can collect this by obtaining a court judgment, then using a variety of methods to execute it. These may include garnishing wages, attaching other property, or putting a lien on your home.

To prevent this from happening, you must take the initiative. Contact the lender as soon as you discover you are unable to continue paying to try to work out an acceptable payment plan with your creditors. If you are unable to do so, seek the assistance of a local consumer credit counseling service. This agency will work out a payment plan that limits payments to a percentage of your income. Creditors are often willing, though are not required, to accept this plan.

For student loans, a deferment or forbearance can sometimes be arranged. In the former, the student is not responsible for accrued interest; in the latter, interest accrues, but collection activity ceases during the agreed upon nonpayment period.

A second option is to declare bankruptcy. This is an extreme measure that you should resort to only if you have huge debts, no hope of repaying them, and the assistance of a competent attorney. Bankruptcy information will be carried in your credit bureau file for seven years.

The Fair Debt Collection Practices Act does offer some protection against abusive debt collection practices. For example, it prohibits harassment, abusive actions, using false statements, and threatening illegal collection practices. The principal limitation of this law is that it protects debtors only against collection agencies, not against attorneys acting as collection agents or against merchants seeking payment.

Defaulting on a loan is never a pleasant experience, but taking the right steps can make it tolerable.