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Your Budget Packet

How to write a cover letter to creditors and assemble a budget packet to negotiate with creditors

Sample cover letter   Assemble your Budget Packet   Hiring a debt attorney to write a letter for you

The purpose of a cover letter to your creditors is to demonstrate your current financial situation and ability or inability to repay your debt.

Your budget is a negotiating tool, nothing more.  This is not a pass or fail test, it's merely a statement of fact.  Please understand that everything you note as an expense must be verifiable by your bank or other creditor, so don't lie or try to add in expenses that cannot be proven by your cash flow statement or bank statement.

Based on your current financial situation, your creditors will either work with you to make reasonable repayment arrangements, file a claim to obtain a judgment (even if there is no possibility to collect, the debt can still be kept as an accounts receivable on their balance sheet), or write off the debt as a loss.

Creditors do not want to read a long, drawn out story of woe.  Nor do they want to read one long paragraph.

You will make the greatest impression by keeping your comments short and to the point, by using short sentences, and by using bullets.

IMPORTANT NOTICE 1: Give full financial disclosure to financial institutions and attorneys only. 

Check cashing store, casino, and other establishment's employees do not need to know to whom you owe money nor details about your private financial struggles.


IMPORTANT NOTICE 2:  At the end of your letter, tell your creditor to communicate with you in writing only.  Without written communication you have no paper trail, and without a paper trail you have nothing to present in court should the necessity arise.

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Your creditors are only interested in the following information:

  1. Your cash flow, which is covered by your budget.

  2. Employment:

    ? Whether or not you are employed and if not, why not (disability, lay-off, full-time caregiver for a family member, etc.);

    ? If you are able to work, what you are doing to find a job.

  3. The full remaining balance on loans, credit cards, and other debts and to whom those debts are owed (see IMPORTANT NOTICE 1 above).

  4. Whether or not you can get a second mortgage or can obtain a loan from a relative.

  5. Whether or not you have assets you may be able to sell or use as collateral.

  6. How much you can afford to remit each month toward the debt. 

    NOTE: Any amount will do. 

    • The closer you can get to $100/mo the better. 

    • If you can afford to pay more than $100/mo, great;

    • however, if realistically you can only afford $10/mo, then put that down. 

    • If you have no money at all and are living off credit cards and other borrowed money, don't put down any monthly payment at all.  Skip the issue entirely and let the bank figure out what to do.

An accounting of your financial circumstances opens the door to discussion and negotiation, however be aware that you may have to send your letter and budget more than once to various parties within the creditor company.  Also, creditors have a tendency to jump from collection agency to collection agency, so you may have to send your letter and budget to each new collection agency.

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Assemble your Budget Packet

The cover letter goes on top, next comes your budget worksheet, followed by the copies of bills and statements to back up your expenses, a copy of your police report (if available), then the copy of the Western Union or MoneyGram tracking report (if available).

If your transaction involved PayPal, you may want to include a copy of your PayPal activity as well.

Letter from a debt attorney

Depending on the amount of your debt, to whom it is owed, and the amount of trouble the creditor is giving you, you may require the services of a debt attorney. 

You can always consult with an attorney for an hour's worth of his time or less.  Retainers do not come into play unless you ask him to do more for you than write a letter.

It is quite affordable to consult with an attorney and ask him to write a letter to the creditor, which often carries more weight than one of your own.  See How to Choose an Attorney

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We are not attorneys and don't pretend to be.  In our experience, the information and guidance offered on this site have proven to be effective; however, we always recommend that you consult with an attorney.

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