We are living in challenging, uncertain times. Covid-19 is wreaking havoc on the global and domestic economy and no one knows when business and life will return to normal. How long the economy will be affected is anyone’s guess. If you find yourself furloughed or laid off due to this pandemic, you are not alone. Millions of people are in the same position right now. To the extent possible, you want to be proactive rather than reactive in managing your finances and debt obligations. Your creditors expect to hear from you. Many are willing to be flexible if you reach out and explain your situation. The government and financial institutions are taking steps to provide additional relief as the Covid-19 situation evolves. If you are struggling with managing debt after a coronavirus layoff, here are some strategies to help you through to better times.
MEET WITH ONE OF OUR BANKRUPTCY ATTORNEYS
It would be good to first meet with a bankruptcy attorney before you consider some of the options below. If you were already in a precarious financial situation, some of the options below will just delay the inevitable and cause prolonged pain. Meeting with a bankruptcy attorney can’t hurt and we don’t push out clients to file unless it is their best option…
A. APPLY FOR UNEMPLOYMENT INCOME
If you were laid off or furloughed due to Covid-19, you might be eligible for unemployment compensation through your state. Some types of workers normally do not qualify for unemployment. However, under the federal CARES Act, categories of eligible workers have been expanded to include independent contractors and some self-employed workers. The CARES Act also increases weekly unemployment benefits with an additional $600 per week of Federal Pandemic Unemployment Compensation until July 31, 2020. You can receive this extra amount even if you’ve previously exhausted your state benefits. To verify your eligibility and find out how to apply for benefits, check with your state’s unemployment office or website. You will want to apply as soon as you are eligible but be prepared for a delay as states work with the federal government to distribute these funds. Continue to check on your application status and if possible continue to check your state’s unemployment website and/or sign up for coronavirus email updates or alerts. Your state unemployment office might also use Facebook or Twitter to communicate updates. If you’ve already filed an unemployment claim and were approved or are receiving benefits, you don’t need to do anything to receive the additional $600 increase. Most importantly, you will likely have to be patient. News reports each week highlight how state unemployment offices are overwhelmed by the rapid rise in claims. It may take multiple attempts to file your claim by phone or online, and benefits could be delayed as state agencies try to keep up with demand and adjust to new federal guidance from the CARES Act.
B. RESEARCH DEBT RELIEF OPTIONS
Various relief options are available on the federal, state, and local levels. Some of the major forms of relief include: Mortgage Relief The CARES Act gives homeowners with government-backed mortgages the right to request two periods of mortgage payment forbearance if they are experiencing financial difficulty because of the pandemic. These periods collectively total 360 days of non-payment. During a forbearance period, no additional fees, interest, or penalties may be assessed for the forbearance. This mortgage relief is provided to borrowers who have government-backed mortgages including those insured by: • Fannie Mae. • Freddie Mac. • HUD. • FHA. • USDA. • Veterans Administration. Multifamily property owners who were current on their federally-backed mortgages on February 1, 2020 may request forbearance for 30 days and extensions that equal another 90 days. If you receive a forbearance, you cannot evict a tenant from your property. Other lenders are offering forbearance, albeit for shorter time frames (typically 60 to 90 days). Contact your lender to explain your situation and see what help is available.
Foreclosure Moratorium
The CARES Act also provided for a 60-day foreclosure moratorium that began on March 18, 2020 for properties secured by mortgages backed by the federal government. Additional federal relief may be available if Congress passes a new relief bill. Additionally, several states and municipalities are disallowing foreclosures during this time. In other jurisdictions, courts are closed, so the eviction process may not be able to be carried out. Eviction Relief The CARES Act provides a moratorium on evictions for non-payment of rent for people who live in federally assisted housing or single-family or multi-family properties with federally-backed mortgages. These rules also prohibit owners of such properties from charging late fees or other fees due to non-payment. Several states and local governments have also enacted special orders that prohibit landlords from evicting tenants during the pandemic. For example, California’s moratorium on residential evictions prohibits eviction if a tenant contacts his or her landlord to notify him or her that the tenant is unable to pay due to COVID-19. Student Loan Payment Suspension Student loan payments and accrual of interest under certain federal loan programs are suspended through September 30, 2020 under the CARES Act. The suspension is automatic, but you should contact your loan provider for information about your specific student loan situation. Although you can continue to make loan payments if you choose, consider stopping payments altogether. This is a no-lose situation here because the interest accrual is on hold. Suspending payments can help free-up cash for the things you can’t delay, like food and possibly the mortgage or rent. Unfortunately, the relief program does not apply to borrowers with private student loans. If you are unable to pay private student loans, you should contact your lender and ask about loan modification programs, which many offer. Don’t wait!
Utility Shutoff Moratoriums
Your local utility companies may have agreed not to cut off necessary utility services, or your locale may prohibit cutting them off during the pandemic. Since the federal government and the states have declared a state of emergency, there may be additional consumer protections during this time. Additionally, the Federal Communications Commission is requesting that carriers to not cut off consumers’ telecom services. Community Resources You may have additional resources available on the local level. For example, New York implemented a policy that froze payments on student loan, medical, or other debt owed to the state for at least 30 days. Community and faith-based organizations may be able to help with rent or utilities. Food banks are also available to provide for basic food, household supplies, clothing, and other resources, depending on the organization and availability of resources. Grassroots efforts have also been made around the country, helping with everything from supplying masks and PPE to those in need, to clothing and resources for the homeless. Programs to provide financial assistance to laid-off restaurant workers or freelancers have also been established. For example, the Restaurant Workers’ Community Foundation has set up a relief fund to help distressed workers and restaurant owners. You can check what local resources are available in your area here. You can also check with your local news organizations and government agencies for more information.
C. CONTACT YOUR CREDITORS
Check with your creditors to see what leeway you may have. Many banks are offering customers breaks on credit card payments, but you usually need to ask. Some large insurance companies are refunding a portion of your car insurance payments for March, April, May and/or June 2020 if you have an active policy during this time. If you have a relationship with your banker, a representative at a local utility company, or another one of your creditors, try talking to that person first to see what options may be available. Creditors have a lot of leeway in what they may be able to do to ease the financial burden on you during a time of crisis. They may agree to temporarily waive or reduce fees, reduce interest rates, defer payments or make other adjustments. Some creditors are refunding interest charges and reinstating reward points as a way to help. Be sure that you mention that you were laid off due to coronavirus, which may trigger some of your options. Many companies have hardship programs that are only available if requested and in times of personal or financial crisis. A lot of companies have their COVID-19 policies on their websites, so review this information before calling to see what options may be available. When negotiating with your creditors, be sure that you understand any long-term consequences, such as whether the company will raise your interest rate or report you as delinquent, which can negatively impact your credit score. Also, try to get any agreement in writing to protect you in case you later see a statement that charged you fees or was not in line with your new agreement. Be patient. A lot of customers will be calling for the same reasons you are. It might take a while to get through on the phone. Be prepared to explain the reason for your financial difficulty; the help you would like (skip a payment, extend a due date; waive late fees and interest penalties; don’t report a late payment to credit bureaus); and when you think you can resume payments.
D. CONSIDER YOUR OPTIONS
If you have more debt than income after you have taken all of the steps above, there are various strategies you may be able to use to ease your financial burden during this time. The availability of options will largely depend on your particular circumstances, available resources, and your credit history. Some strategies that you may be able to use include:
Cut Unnecessary Spending and Triage Debt
It may seem like an obvious step, but one of the first things you should do is assess your spending and triage your finances. What does this mean? Take an accounting of all your bills and categorize what is truly essential (housing, food, car, healthcare, etc.). Then, cut out any nonessential spending for the immediate future. That may mean making some unpleasant decisions; for example, canceling or suspending gym memberships and subscription services, and even paring down your cable package and streaming services. Try to be realistic about what is truly necessary and try not to get too discouraged. These cuts are temporary and the goal is to free up as much wiggle room in your budget as possible for the things that cannot be put on hold.
Use Stimulus Funds
The CARES Act issued “everyone” a one-time “stimulus” of $1,200 or $500 – You should use this money to fund a down-payment on a home, a new yacht, or maybe a European vacation… Just kidding. But it’s better than nothing and you might as well save it or spend it.
