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.
A. APPLY FOR UNEMPLOYMENT INSURANCE
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:
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
• 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.
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.
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.
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 Balance Transfers
If you have been putting off transferring your credit card debt to a lower rate card because you wanted to avoid balance transfer fees or didn't have the time to do so, now may be the time to make this move. By transferring high-interest-rate debt to a new card with 0% interest, you can potentially save thousands on interest charges if you can devote payments to your debt during the 0% interest period. Additionally, the Federal Reserve has cut interest rates, so even if you are unable to secure a 0% interest rate, you still may be able to secure a card with a much lower interest rate than what you are paying now.
Use Stimulus Funds
Many Americans will qualify for stimulus funds, which provide up to $1,200 for single filers and $2,400 for married couples filing jointly, plus $500 per child. If you have not yet received (or spent) your funds, consider the best use of these funds. This may be to pay a couple of months of mortgage payments to give you some breathing room, pay off high-interest rate debt, stock up on groceries, or take other action specific to your situation.
Apply for a Personal Loan
Some lenders are providing temporary emergency loans to people to help cover the gap between the date when they are laid off and when they start receiving unemployment benefits. These emergency loans are usually structured so that consumers do not have to make payments until 60 or 90 days after the loan origination date. A personal loan may also be a way that you can consolidate your debt to achieve lower payments and a lower interest rate.
Dip into Your Retirement Fund (a Last Resort)
Dipping into a retirement account before you retire should probably be a last resort if you need cash to cover necessary living expenses. If you have taken all of the steps above and still have a deficit, you may consider this option.
The CARES Act waives the 10% early withdrawal penalty for those under age 59 1⁄2 on distributions up to $100,000 if the distribution is related to coronavirus hardship. You will still be responsible for paying income taxes on the amount you withdraw, but you have three years to pay these taxes.
The CARES Act also broadened the qualified retirement plan loan provisions to allow a participant suffering from a coronavirus hardship to borrow up to $100,000 or 100% of the participant's vested account balance, whichever is less. This applies to loans made within 180 days of enactment of the legislation (March 27, 2020). Additionally, you can suspend existing retirement plan loan repayments due between March 27, 2020 and December 31, 2020 for up to one year.
A coronavirus hardship includes a Covid-19 diagnosis for you, your spouse or dependent and financial hardship as a result of business closures, reduced work hours, lay off, furlough, lack of child care, or other factors as determined by the Treasury Secretary.
Try Credit Counseling
Another option you may consider is working with a reputable credit counselor who can help you come up with a new budget, explore ways to minimize expenses and develop a plan to consolidate your debt or make new debt repayment plans with your creditors. If you go this route, be sure to properly vet the credit counseling company and make sure your counselor is accredited by the National Foundation for Credit Counseling.
Also, be aware that you may have to close accounts you are paying off, and this may impact your credit score and may stave off credit you might need to access in case of an emergency.
Finally, you can consider filing bankruptcy. This option is listed last because it is a last resort. It can have a major impact on your credit score and may prevent you from securing loans or new credit in the near future. However, bankruptcy may allow you to discharge debts that are overwhelming you. It may also help you to put a hold on any legal actions being taken against you, such as foreclosure or repossession of your vehicle. Please contact the Law Office of Madeline M McIntosh for a free consultation to see if filing bankruptcy is right for you.
GET MORE INFORMATION
The steps that you should take to manage your debt after a coronavirus layoff are specific to your situation. Speak with a certified financial planner or the Law Office of Madeline M. McIntosh to learn more about your options.
This blog is intended for information purposes only and does not establish legal representation or financial guidance.