When You Cannot Pay: A Route Through Arrears and Restructuring

What to do in the weeks around a payment you cannot make, in the order that preserves the most options, and what a lender can realistically restructure.

Arrears are a process, and the earliest part of it is where almost all of your options live. A borrower who contacts the lender before a payment is missed is negotiating; one who contacts it after three are missed is responding. The route below is about sequencing: stabilise the cash, open the conversation, document the position, and only then discuss what can be restructured. What a lender may offer depends on its policy within the framework SAMA supervises and on your circumstances, and it changes, so confirm the current position with your lender rather than relying on what somebody else was offered.

Before stage one

Nothing in this process is improved by waiting, and almost everything in it is improved by evidence. Before you make the call, know your own numbers precisely, because a lender can work with a borrower who has a plan and cannot work with one who has only a problem.

• An honest monthly statement of your income and every obligation, written down.
• The exact date of the payment you expect to miss, and the amount of the shortfall.
• Your finance contract, with the clauses on late payment, default and restructuring located.
• A short written explanation of what changed, with whatever evidence supports it.
• A realistic figure for what you could pay each month, sustained, rather than a hopeful one.

Stage 1: Stabilise the immediate cash position

Separate obligations into those that must be paid to keep you housed and working, and those that can be renegotiated. Stop discretionary commitments immediately. Do not fund a property instalment with a new short-term facility, because that converts a payment problem into a larger and more expensive one.

• Deliverable: A one-page current position showing income, essential outgoings and the shortfall.
• Owner: Borrower.
• Approval gate: No new credit taken to cover the instalment.

Stage 2: Contact the lender before the missed payment

Call and then write, naming the date and the amount you will be short, what caused it and when you expect it to resolve. A lender that hears from you in advance is dealing with a cooperative borrower, which materially affects what it is willing to consider.

• Deliverable: A dated written notification with the lender’s acknowledgement.
• Owner: Borrower.
• Approval gate: Contact made before the due date, not after it.

Stage 3: Document the change in circumstances

Restructuring decisions are made on evidence: a termination letter, a medical report, revised business accounts, a tenant’s notice. Assemble the documents that establish what happened and whether it is temporary or permanent, because the two lead to different solutions.

• Deliverable: An evidence pack supporting the explanation you have given.
• Owner: Borrower.
• Approval gate: Every assertion in your explanation supported by a document.

Stage 4: Understand what can actually be restructured

Ask the lender what options exist for a case like yours: a payment holiday, a period of reduced payments, a term extension, a rescheduling of arrears, or a change to the structure. Ask what each does to the total you will pay and to your credit record, because relief now usually has a cost later.

• Deliverable: A written list of the options the lender will consider, with their consequences.
• Owner: Lender, requested by the borrower.
• Approval gate: No option accepted before its effect on total cost and credit record is understood.

Stage 5: Propose a specific plan

Do not ask the lender what it can do and wait. Propose a figure you can sustain and a period, supported by your one-page position. A concrete proposal is far more likely to be accepted than a request for help, and it keeps you in control of the numbers.

• Deliverable: A written proposal with an amount, a period and a review date.
• Owner: Borrower.
• Approval gate: The proposed figure is one you are confident you can meet every month.

Stage 6: Document whatever is agreed

Any variation should be in writing, signed, and clear about what happens to the arrears, how the term and the total change, and what is reported to the credit bureau. A verbal forbearance is not a variation and will not protect you later.

• Deliverable: A signed variation agreement with the treatment of arrears stated.
• Owner: Lender and borrower.
• Approval gate: Nothing relied on that is not in the signed document.

Stage 7: Consider the sale route honestly

Where the position is not temporary, a controlled sale on your own timetable almost always produces a better outcome than an enforced one. It is a painful option that gets considered too late, usually after the equity that would have made it work has been consumed by arrears.

• Deliverable: A valuation, an estimate of net proceeds after settlement, and a decision.
• Owner: Borrower, with a valuer and a licensed adviser.
• Approval gate: The sale option priced before the arrears become substantial.

Handovers between stages

Once a file moves from the relationship team to a collections function, the person you deal with changes and the discretion available usually narrows. That transition is the reason to act early. Keep one written record of every conversation and every document sent, so that a new officer can be brought up to date from your file rather than from the start.

How you know it is finished

The situation is resolved when either you are back on the original schedule, or a signed variation is in place that you can meet, or the property has been sold on your terms with the obligation settled. Where enforcement is in prospect, take the documents to a licensed legal adviser rather than negotiating alone, and confirm the current regulatory position with your lender and SAMA, since practice in this area is revised over time.

Domira works alongside the finance side of a property purchase or a build: the valuation evidence, the cost plan and the construction programme that a lender needs to see. The lending terms come from your bank or finance company, and Domira makes sure the property side of the file stands up.