The present coronavirus pandemic is unlike anything that most of us have seen in our lifetimes. Setting aside the medical issues and health risks associated with this fast spreading disease, there will be economic and financial consequences for years to come. This uncertainty can be very unnerving, especially for those employed in what the various governments have deemed as “non—essential” industries or professions. Some individuals have been forced to work from home, and others have been laid off or are without any source of income due to their inability to work remotely. With significant experience in handling bankruptcy cases in the Augusta GA area, primarily in the counties of Columbia, Richmond and Burke, our firm would like to offer some guidance to those who have been financially affected by the coronavirus, or the related government restrictions.
1) Do not worry about your credit score!
Too often consumers struggle to maintain all of their debts, because they are worried about protecting their credit score. This causes an inability to prioritize debts and can potentially jeopardize your ability to pay basic utilities, or to pay debts that are most important going forward.
2) Worry about paying the debts that are most important for you and your family.
Concentrate on your secured creditors, including mortgage lenders and vehicle lenders. If you do not have a mortgage payment, then obviously a car payment would be your highest priority. If you default on your mortgage, the lender can foreclose on that debt and take your home. If you default on your vehicle payments, the lender will repossess the vehicle. The consequences of defaulting on a secured debt such as your mortgage for vehicle will be more immediate than defaulting on a credit card or personal loan and should be considered your first priorities.
3) DO NOT PAWN YOUR CAR TITLE!!!
No matter how bad you need the money, do not resort to a title pawn. Bankruptcy cannot provide any relief for it on your vehicle. And you do not have the same repossession protection from a title pawn that you do from a standard automobile financing agreement.
4) The collection process for an unsecured debt will generally far exceed the amount of time that it would take to lose your home to foreclosure, or your car to repossession.
Many collection agencies will threaten to immediately garnish your wages. However, your wages cannot be garnished until a creditor has filed a lawsuit against you and obtained a judgment against you. Typically, from the first default on a credit card, it will be over one year before a lawsuit is filed against you, and months after that before your wages would be garnished. Don’t let an unsecured creditor convince you that they are more important than your home loan or vehicle loan!
5) Seek a deferment or forbearance on student loan debt, if you have any.
Like a credit card or personal loan, student loan lenders do not have an immediate resort to extreme collection activity that a home lender or vehicle lender would have. Additionally, student loan lenders are usually fairly generous with respect to deferments or forbearances. If your change in income is likely to be long-term, you may qualify for an income-based repayment plan. This is especially likely if your student loans are guaranteed by the federal government, so definitely research your alternatives.
6) Find out your mortgage options.
If prioritizing your debt is still not yielding enough money to pay for your home, car, and basic utilities, you need to contact your mortgage lender to see if a deferment or long modification is a possibility. Most federally backed loans such as VA loans, USDA loans and other government subsidized mortgage loans have enacted a six-month foreclosure moratorium. Most larger banks do not want to revisit the 2008 recession and will probably be more willing to work with borrowers after this crisis is passed. However, if you have funds to make your mortgage payment, don’t make the mistake of relying on the possibility that your mortgage company will be forced to modify your loan in the future and use the funds for another purpose.
7) Be prepared to make tough decisions about your secured creditors.
You need to seriously consider whether it is worthwhile to make payments on secured debts that are not necessary for housing or work, such as debt secured by recreational vehicles, watercraft, motorcycles, and ATVs. Don’t overextend yourself on your recreational secured debts, and wind up losing a home or necessary vehicle.
If you have limited funds, you simply will not be able to make all of your creditors happy. The goal is to maintain the debts that are most important to you, your family, and your ability to pursue your livelihood once this crisis has passed. If you try to juggle all of the debts, you may eventually lose everything. Admittedly, this is going to require some tough household decisions, and there is no guarantee that applying the suggestions is going to prevent you from filing a bankruptcy in the future. But hopefully, it will allow you to preserve the property that is most important to you and your family.
For more information on this topic, and related topics about the financial consequences of the coronavirus pandemic, please visit the Leiden and Leiden Facebook page. Periodic Facebook Live segments are recorded by Zane Leiden that will address these and other issues.