Loss of Income due to the Coronavirus (COVID-19)

Many of us are facing loss of income.

Even businesses considered “essential” under Governor DeWine’s “stay at home” order are suffering.

Many have reduced hours, or are closed.

We are seeing record unemployment applications in Ohio.

Information about unemployment can be found here:  http://jfs.ohio.gov/unemp_comp_faq/index.stm

The first thing to do when dealing with a loss of income is make a written budget (link)

If you can afford to make the minimum payments, or lower your payments by negotiating with your creditors, then you can breathe a bit. Hopefully this will get you through.

But what do you do when this is not enough?

What if you have to choose which bills to pay, which you simply cannot afford?

The choices you make now will lead to other choices later.

Everything we do has consequences.

The way to make these decisions involves several related considerations.

What will happen in the short term if I chose to not pay a debt?

What will the long term result likely be?

What will I need to do to repair the damage later?


SHORT TERM CONSIDERATIONS.

What will happen quickly if I just don’t pay a bill, or if I don’t pay in full due to loss of income?

If you can make partial payments on unsecured debts like credit cards, medical bills and personal loans (including loans secured by household items), it will generally result in that debt not being sent to collections as quickly as if you just stop paying altogether.

You’ll get automated dunning letters and perhaps calls. You can live with this for a while.

Unsecured debts are the least damaging, immediately, to you.

Of course, failure to pay any bill on time will have an  adverse effect on your credit, but that is a lower priority for us right now. We’re in emergency survival mode.

Car payments are priority.

Unless you make an agreement with your car creditor, you should keep your car payment current.

Your car can disappear at any time the payment is delinquent.

Getting it back could be more expensive than you can afford.

On the other hand, if you have other transportation and your budget needs to have the money you are currently paying on a car you can do without, then you might decide to stop paying that car payment, and let it go.


VOLUNTARY REPOSSESSION.

Voluntary repossession is a term that is often misunderstood. You can call you car loan creditor, explain that you can no longer make the car payment and you want to turn the car in voluntarily.

You have no contractual right to do this, but many creditors will cooperate because it saves them money on the repossession. But if you voluntarily turn the car in, don’t think that this is the end of it. It’s not.

When you voluntarily turn the car in, the creditor will sell it, and the difference between what you owe and what it sells for is your responsibility.

If your debt is with a credit union, you should change your banking immediately if you will get behind on your car payment, or any debt for that matter. The credit union can take money out of your deposit accounts and make the payment for you. You get no notice when this happens.

After a voluntary repossession, you can be sued by the creditor for the balance.  Many people do not understand this, and are shocked when they get sued after the creditor cheerfully cooperates with them to accept the car back. They think that the voluntary surrender settles the debt.  It does not.


WHEN TO STOP MAKING YOUR HOUSE PAYMENT

This is extreme.

It’s a frightening thing to consider.

What happens if you stop making your house payment?

You might need to.

What if your income is so drastically reduced that all you can afford is living expenses, and the car you need to keep?

You may have no choice but to stop paying the house payment.

House payments do not follow the same rules as unsecured debt – partial payments will do you little or no good. If you simply cannot afford the house payments, you need to think this through.


IF YOUR HOUSE HAS LITTLE OR NO EQUITY

In this situation you have little or no equity to lose if you stop making payments on the mortgage and start getting behind.

Many people just stop making their mortgage payments and continue to live in the house.

Depending on what county you live in, the mortgage foreclosure process can take months, even over a year.

This is referred to as “strategic foreclosure” and is used by many to weather difficult financial times.

The strategy here is to intentionally stop making payments, knowing that a foreclosure will follow at some point. How long it will take varies from lender to lender even in normal circumstances, and with the coronavirus, it remains to be seen how quickly foreclosures will be filed.

Even if a foreclosure is filed, there are legal ways to slow it down.

You will want to file an answer to the complaint. Perhaps request mediation if your county offers mediation services for foreclosure cases. There are a number of legal rights you have to slow down a foreclosure even if, in the end, you decide that trying to keep the house is not in your best interests.


IF YOUR HOUSE HAS EQUITY, OR YOU JUST WANT TO KEEP IT.

If your income returns quickly enough you may be able to make an agreement with the lender to catch up your missed payments. These are called forbearance agreements. The creditor agrees to not foreclose, or forebear action, provided you make up the missed payments, usually over 6 to 12 months.

If your income returns later, too late for you to be able to make up the missed payments in a timeframe agreeable to the lender, you still have an option to keep the house.

At any time prior to an actual foreclosure sale, and these are currently not being scheduled in some counties, you could file a chapter 13.

The advantage of a chapter 13 is that you do not have to pay the lender’s attorney  fees, you get 36 to 60 months to catch up the missed payments, and, importantly, you are NOT at the “mercy” of the lender – you don’t need to get them to agree to chapter 13.  It’s your right to do this, and if you qualify and the plan is proposed according to law, the lender has to go along with it.


HOW TO GET THE RIGHT PLAN FOR YOUR NEEDS

There are multiple variations of the above strategies when dealing with loss of income due to the coronavirus.

We’ve been carefully crafting financial recovery plans for our clients for decades.

Often, the best plan is not a single plan, but rather a combination of different strategies and plans executed in concert with each other.

Of particular importance is consideration of an uncertain future.

We can show you plans that address immediate concerns and leave the door open for future contingencies should they arise.

I like to have a plan, and also a backup plan, just in case.

Although this has been my standard approach for years, it has never been more important than it is now, because things have never been more uncertain than they are now.  As a Board Certified Consumer Bankruptcy Specialist, one of only 10 in Ohio, I can show you ALL your options. And, as a certified debt specialist, I can also compare the non-bankruptcy options for you.

Together, we’ll leave no option unexamined, and no question unanswered, so you will have the confidence and peace of mind that comes with knowing, without a doubt, that you have done all you can to review all available options and get the best plan possible.


ABOUT YOUR CREDIT

Although your main concern right now is to survive this economic disaster due to loss of income and the coronavirus COVID-19, your future credit matters too. It’s a concern I address, as a certified credit counselor, with a unique program I have developed to help you rapidly recover your credit after discharging debt in bankruptcy.