Many of us are out of work and suffering financially due to the pandemic. While the federal CARES Act has helped somewhat by extending and expanding unemployment benefits, providing payroll protection loans to small businesses, initiating forbearance on foreclosures and on making certain mortgage payments, and initiating a period of forbearance on student loans, all of this help is set to expire very soon.
What are you going to do? Don’t panic. This guide will provide you with actionable steps you can take to survive financially during these unprecedented times, and perhaps avoid ultimately filing Chapter 7 or Chapter 13 bankruptcy.
Step #1: Talk with your Mortgage Lender/Servicer or Landlord Before You Fall Behind
If you are struggling to make your mortgage or rent payments, or any assistance or forbearance you’ve had is expiring and you can’t make monthly payments, talk to your mortgage servicer, mortgage lender, or landlord before you miss a payment.
Why should you be proactive? Because if you are not, your lender, servicer, or landlord will report missed payments to the credit bureau and that will have a negative effect on your credit score. Preserving your current score throughout this economic crisis should be a priority, as having good credit will help you recover financially when the crisis passes.
The CARES Act put federally-backed loans in forbearance and most private lenders followed suit if borrowers contacted them to ask. It is worth contacting your lender or servicer and asking if forbearance can be extended for a time. The federal government may pass legislation extending forbearance, but you cannot and should not count on that.
An alternative to forbearance is to ask your lender or servicer for a mortgage modification, especially if your home is worth less than what you owe on the mortgage or mortgages.
Help with Rent
The CARES Act offered landlords tax breaks if they did not evict tenants for nonpayment of rent. Again, this is set to expire soon. Talk with your landlord about state or federal rent assistance programs you may be eligible for, such as Section 8 housing.
Step #2: Pay the Minimum on Your Credit Card Balances for Now
If you are underemployed or unemployed and relying on unemployment benefits and whatever state and community aid programs you can access, pay credit card minimums only. You need to have ready cash to live. Paying more than the minimum likely means you will need to use your credit cards more for everyday expenses like gas, utilities, or groceries. Strive to pay these in cash.
Credit cards can be dangerous to your financial stability because balances quickly balloon at the exorbitant interest rates they charge. Use your credit cards if you need to by all means, but try to pay for most things in cash so that when this crisis passes, you are not left with unpayable credit card balances.
Again, paying the minimum each month in full and on time preserves your credit score.
Step #3: If You Cannot Afford Your Car, Trade it in for a Less Expensive Car
If you are out of work, you probably aren’t driving much. This saves in gas and wear-and-tear on your vehicle, and if you contact your auto insurance carrier you will likely be able to get a discount, for now.
But what if your car payment is just too much? Trade it in and get something more affordable. When the economy bounces back and/or you work more, you can always buy another auto. Now, you need the ready cash to survive, not to pay a car payment you can’t afford for a vehicle that is mostly just sitting in your driveway.
Step #4: If Unemployed, Consider Developing a Side Hustle
If you’ve lost your job or are underemployed, know that there are many work-from-home opportunities. In fact, due to the pandemic, many workers have been doing their job from home, even in industries and fields where working remotely was not previously thought possible.
Think of what skills you might be able to offer an employer, working from home. Proofreading? Web design? Virtual assistant? Then check out the many online sites that connect remote workers with employers, such as UpWork, FlexJobs, Remote.Co, and JustRemote.Co.
An unintended good consequence of the pandemic is the proliferation of remote work. Surf the online services and see if there is a job for you.
Step #5: If You Have Student Loans, Explore Income-Based Repayment Options
Again, the CARES Act established a period of interest-free forbearance for federal student loan borrowers, and many private lenders followed suit. Payments will be required starting in the month of October 2020, if no federal legislation is passed to extend the forbearance period.
Consider one of the several income-based repayment (IBR) options that are available. It is a simple matter to apply online. You will give permission for the servicer to access your last tax return and explain that due to the pandemic, you are unemployed or underemployed and cannot afford your regular student loan payment. Your new payment will be based on a percentage of your present income and will likely be greatly reduced.
These are steps you can take to survive financially in the present and for the next few months. If the economy continues to suffer due to the pandemic, you continue to be unemployed or underemployed, or federal, state, and community aid programs expire, you should contact an experienced debt and bankruptcy attorney to explore your options.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with busy Woodbury bankruptcy attorney Stephen V. Bottiglieri, Esq.