Too broke to pay back your loan?

THESE days, securing a loan is easy.

Repayment is the tough bit. And when you don't repay on time, the recovery agent may come knocking at your door. You might have read newspaper reports on how they 'tackle' those who default.

But what if you have a 'genuine' reason for defaulting on your loan? "Try for a settlement with the bank," says Ashok Kargutkar, a counsellor at Abhay, a debt-counseling centre. The operative word is 'genuine' and if you can prove the genuineness of your case, the banks may settle.

How it works:

1. Submit documents to prove you are bankrupt and cannot pay the outstanding amount. The most relevant document would be an affidavit that states you have no assets -- property or estate -- that you could use to pay it back. Consult your lawyer before declaring bankruptcy to the court.

2. If you do file for bankruptcy, the bank will not waive off the entire amount. You still have to pay an amount that is mutually agreed on, between you and the bank. "This amount largely depends on your ability to pay as well as the bank's policy towards such cases," says a senior bank official.

3. The bank may extend your repayment period and break the outstanding amount into equal monthly installments to facilitate repayment.

4. If you have credit card debt where the interest rates are 45 per cent per annum, you could go for a cheaper loan -- a personal loan.

5. If your bank agrees to a settlement, you could further request for an extension of the duration of repayment.
When the bank won't settle

Despite declaring bankruptcy, if recovery agents and banks continue to harass you, approach a debt-counselling centre such as Abhay (a trust funded by Bank Of India) and Disha (supported by ICICI Bank).

These centres focus on three things: financial education, credit counselling and debt management.

"Most people are in debt due to their reckless spending habits. We ask them to discipline their spending and manage assets to pay off debt," says Kargutkar.

"We guide those with genuine problems. If banks and financial institutions are unresponsive, we take up the matter with the respective authorities."

Ashok's advice: Stick to your budget. NEVER spend beyond your means. Be financially aware.

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