Financial hardships that qualify for debt resolution

By Gina Freeman

Reviewed by James Heflin

Feb 12, 2024

Read time: 6 min

Young woman talking on checking debt resolution options

Key takeaways:

  • Creditors understand that financial hardship happens, and your lender or credit card company may give you a break.

  • It’s crucial to ask for help the right way—and document your hardship.

  • Experienced debt professionals could help you make your case and negotiate with your creditors.

Most people experience financial hardship at some point, and they usually find a way to get through it. So can you—you're doing the right thing by researching options to deal with your debt and learning whether your situation might qualify for debt resolution.

Debt resolution and financial hardship—how they relate

If you are worried about making the monthly payments on your debts due to financial hardship, debt resolution is a good option to consider. Other solutions include debt consolidation, credit counseling, refinancing, bankruptcy, hardship loans, and debt management plans offered by credit counselors. 

When less-drastic debt fixes (like a home equity loan or personal loan for debt consolidation) are open to you and could solve your problem, it makes sense to apply for them. 

However, those solutions won't help if you don't qualify, or can't afford them. Consider debt resolution when you experience true financial hardship. You increase your chances of a successful debt negotiation by demonstrating to creditors that you're dealing with serious financial difficulties. Otherwise, there's little reason for them to accept less than the full amount that you owe them. 

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Qualifying financial hardships for debt resolution

Qualifying financial hardships fall into two categories: hits to your income, and unexpected expenses. And sometimes, you might get a double whammy—a medical emergency, for instance, that causes income loss while you're incurring healthcare costs. 

When you experience a financial hardship, you want to explain what happened and show how it impacts your ability to pay what you owe. Being able to prove a hardship is essential in debt negotiation when you're asking for help with credit card debt or other balances. It may also help to document your attempts to find new work, enroll in job training, or reduce expenses.

Job loss or income reduction

When you lose a job, your hours are cut, or your business income falls, you may have difficulty paying your debts. There are several ways to prove loss of income:

  • Layoff notice

  • Unemployment benefit letter

  • Pay stubs showing reduced hours and income

  • Notice from employer of reduction in hours or pay

  • Financial statements for your business

  • Previous tax returns to show change in income

  • Bank statements showing change in deposits

Explain how much money you're losing and how it impacts your finances—for instance, if your income barely covered your credit card payments before, and now you make $600 less per month, you obviously need some help.

Medical emergencies

Medical emergencies can be expensive, and they can also lead to income loss. Explain what happened and show the medical bills. You may want to sacrifice some medical privacy to show that you need and deserve a break from your creditors.

Document any loss of income or costs that result from the medical emergency. For instance, if you have to hire a caregiver for your child while one parent recovers, show proof of your cost for that service.

Divorce or separation

If your hardship is a divorce or separation, plan to explain the impact and prove the amounts involved. If you're divorced or legally separated, expect to show a copy of legal documents signed by the court. 

It's obviously more costly to maintain a household on your own than with the help of a spouse. Document your new living arrangements and their costs with utility bills or leases (for both partners if you can). You can write a letter explaining how the divorce/separation impacted your finances, and be as specific with amounts as you can. Don't forget to include costs like child support, alimony, and attorney fees. 

If the debts are in both of your names, you must both participate in the debt negotiation process. Be prepared to work together to solve your mutual problem. 

A divorce doesn't make debt obligations disappear, unfortunately, even if you have a divorce decree that says your ex is responsible for all or part of a debt. Your agreement to repay a loan is with your creditor, not your ex. 

Natural disasters 

Natural disasters like flooding, earthquakes, and hurricanes can be devastating and disruptive. They're usually covered in the media, so it's not hard to prove that a disaster occurred. The disaster that affected you might also be listed on You must show that you were living or working in the area and that the disaster affected your home or employment. 

Document costs such as home repairs, temporary housing, replacing essential household goods, loss of income, moving and storage fees, replacement or repair of vehicles, and other items caused by the event. Be sure to explain how a charge is related to the disaster if it's not obvious, such as if you lived outside the disaster zone, but the event destroyed your workplace.

Catastrophic events

Catastrophic events are tragedies that can happen to anyone, and cause financial havoc in addition to personal grief. They include a death in your immediate family (especially of a wage earner), a tragic accident, a serious crime, or other financial hardship that wasn't your fault and was out of your control. 

Other costly unexpected expenses

In some cases, large unexpected expenses may qualify as a financial hardship. For instance, a major car repair you have to make so that you can get to work, or an expensive home repair like fixing your roof that's leaking or a burst water pipe that's causing flooding. Any major financial situation that puts your ability to pay your bills into question is worth a conversation with a debt expert.

Ask nicely

When you (or a debt resolution company working on your behalf) ask for help from your lenders, give them a good reason to say yes. Offer a letter of explanation and list the amounts involved. Provide documents to back up your claim. And specify (respectfully) what sort of help you'd like from your creditor—interest rate reduction, payment reduction, balance reduction, more time to pay, and so on. 

Creditors aren't required to reduce what you owe, but many will when it makes sense to do so. The better you (or your debt resolution company) are at making this request, the better your chances of getting what you need. 

What's next

  1. Get all the details out on the table, even if it's painful or embarrassing to crunch the numbers. Understand your situation. How much income did you lose? How much did your costs increase? What can you offer your creditors? What do you need from them?

  2. Assemble paperwork to back up your claim of lost income or increased expenses.

Write a hardship letter explaining your situation. Contact your creditors and negotiate your debt. Or let an expert debt negotiator do the heavy lifting on your behalf.

Gina Freeman - Author

Gina Freeman has been covering personal finance topics for over 20 years. She loves helping consumers understand tough topics and make confident decisions. Her professional history includes mortgage lending, credit scoring, taxes, and bankruptcy. Gina has a BS in financial management from the University of Nevada.

James Heflin - Author

James is a financial editor for Achieve. He has been an editor for The Ascent (The Motley Fool) and was the arts editor at The Valley Advocate newspaper in Western Massachusetts for many years. He holds an MFA from the University of Massachusetts Amherst and an MA from Hollins University. His book Krakatoa Picnic came out in 2017.

Frequently asked questions

Get your story together before contacting creditors. Explain what happened, how much your hardship reduced your income or increased your costs, and ask for the help you need. Attach the documents that support your claim.

Creditors aren't required to settle with you at all. There’s no guarantee they will. However, the American Fair Credit Council states the average creditor settlement amount is 48% of the balance owed. Debt collectors may accept even less.

Whether to choose debt resolution or bankruptcy depends on many factors, including these:

  • Whether you qualify for Chapter 7 bankruptcy or would be forced to file Chapter 13

  • The amount and type of debt you have

  • How much debt you’d have to repay under each scenario

  • Whether you might have to pay income tax on forgiven debt

  • How much you’ll pay in fees to bankruptcy attorneys or debt negotiators

  • Whether you prefer to turn control over to a court, versus resolving a debt only if you approve of the terms

  • Whether you want to resolve your debt privately, versus going through a public legal process

  • Whether you need to stop an eviction or foreclosure, or other collection efforts

Debt is personal, and so are debt solutions. There's no one right answer that applies to everyone. What’s important is that you take action to get help with your debt, especially when you are experiencing financial hardship.

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