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FROM TIGHTENING THE BELT TO BANKRUPTCY: An Overview of Your Financial Options if You Lose Your Job Due to the Coronavirus Pandemic

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In early March, less than 200,000 U.S. citizens filed for unemployment benefits. At the end of March, that number increased exponentially – to almost 3.3 million. The most recent news release from the Bureau of Labor Statistics states the following: “Total nonfarm payroll employment fell by 701,000 in March, and the unemployment rate rose to 4.4 percent….The changes in these measures reflect the effects of the coronavirus (COVID-19) and efforts to contain it. Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction.”[1] The report also tells us this is the largest monthly increase in the unemployment rate (0.9%) since January 1975. The number of unemployed people rose by 1.4 million to 7.1 million. The number of temporary layoffs more than doubled to 1.8 million.

A STORY FROM THE FRONT LINES

Stories from the front lines of the employment crisis seem to follow a similar thread – things were going smoothly enough, then the bottom fell out. And it trickles down. For instance, one Market Watch report[2] tells of a woman who had two jobs in completely different markets and lost both. She was a bookkeeper and also provided guidance and support services to women in labor. Presumably she assumed one job would last, but all but one of her bookkeeping clients are unable to use her services because their businesses are fully or temporarily closed now, and social distancing has diminished the source for her pregnancy assistance clients through the agency that assigned them to her. She is now without income, which pays her rent. Her landlady is retired and depends on her rental payments for income. So COVID-19’s effects have gone from her employers, to her, and to her landlady.

DEALING WITH LOSS OF INCOME

Many Americans don’t have any savings to pull from because they were already living paycheck-to-paycheck before the Coronavirus hit and have had to start prioritizing bills in the order of basic needs like rent, utilities, and groceries, to items like credit cards and car payments in order to make their money last. There are some good tips online for how to stay afloat if you’ve got certain resources to pull from[3], but not everyone has the option to draw against a 401(k) or a 529 college savings plan, and some bills just won’t get paid for a while.

Of course, this is when the creditors start calling. This is a really stressful experience that can be avoided if you stay proactive. Reach out to your lenders, loan servicers, and credit card companies to see what information they have to help you. You can ask for payment options or waiver of certain fees related to overdrafts or delays in payment. You’ll need to let them know about your financial situation, your employment status, and your income, expenses, and assets, so have this information ready before you call so you don’t get frustrated trying to find it while on the phone or chatting.

HANDLING YOUR MORTGAGE PRE-FORECLOSURE

Your mortgage company should have some relief options for you, but you’ll likely have to wait for some time before a loan servicer can get to you as phones lines are being impacted by high call volume right now. Two basic things to remember are that first, if you can keep a roof over your head, do it – pay your mortgage if you are able, but start doing your research on available options in case your situation become more dire in the next couple of months. Second, if you can’t pay your mortgage, contact your servicer immediately to put a stop to any process that may begin due to nonpayment without communication about a plan for catching up on payments.

The new Coronavirus Aid, Relief, and Economic Security (CARES) Act protects homeowners with federally-backed mortgages with foreclosure moratoriums and a right to forbearance for homeowners who are experience COVID-19 financial hardships. The moratorium can suspend or stop a foreclosure, and a forbearance allows you to pause or reduce your mortgage payments for a period of time. Of course, foreclosure differs in each state, so you would need to contact your loan servicer to see how the CARES Act affects your situation. A quick overview of the foreclosure and forbearance assistance available through the Act is here: https://www.natlawreview.com/article/foreclosure-and-forbearance-under-cares-act.

CONSUMER AND BUSINESS BANKRUPTCY CHANGES

If all else fails and you need to turn to the courts for help, bankruptcy could be an option. I recently blogged on bankruptcy for business owners, but the CARES act made some changes in regards to bankruptcy law. For instance, your stimulus check cannot be counted as disposable income when confirming Chapter 13 plans, and Coronavirus-related government payments cannot be treated as income for a future Chapter 7 or 13 filing. Debtors currently going through Chapter 13 bankruptcy can seek CARES modifications to their plans.

If you are a small business owner, the Small Business Reorganization Act of 2019 (SBRA – effective February 2020) added subchapter V to the US Bankruptcy Code’s Chapter 11. The Department of Justice, Office of Public Affairs released this press release on February 19, 2020, describing the SBRA’s changes more fully: https://www.justice.gov/opa/pr/us-trustee-program-ready-implement-small-business-reorganization-act-2019.

TAKING A POSITIVE STANCE

It is understandably difficult to come out of reading the information above, and hearing it in social media and on the news, with a positive attitude right now. You don’t even have to pronounce the current mood as that of doom and gloom to make it sound extreme – it’s not really a fun time for Americans, really, anyone affected in the world by the COVID-19 pandemic, but there are some positive thoughts being shared that I’d like to put in this blog in order to end on a somewhat positive note:

Emily Ramshaw of @19thnews, a former Texas Tribune editor, started a silver linings Twitter thread, and tweeted: “I’d been stressed about how much I was traveling away from my little one this year. Now I’m home for every wake-up and every bedtime, which is her personal paradise.”

Laura Lee, Editor @Edutopia, responded with: “My dad (quarantined because he has cancer) read one of my childhood favorite books to my niece and nephew on FaceTime. Hearing him read it took me back. Nostalgia feels like a warm blanket these days.”

Matt Placek said, “While I miss my classroom kiddos a bunch, A silver lining in this scenario is I am blessed to watch, nurture and see these two loves grow before my eyes.”

People are picking up positive new hobbies, tackling old to-do lists, spending quality time with loved ones and pets, and hoping for a lesson out of all of this. I’m keeping my chin up!

The attorneys and staff at the Law Offices of Alex R. Hernandez, Jr. PLLC hope you stay healthy during this nationwide crisis. If you find yourself needing the assistance of an attorney, please feel free to contact my firm. From a professional and personal perspective, I’m in the same boat as so many people worldwide. We simply just want to be a source of assistance for you and your loved ones during this crisis. Well-wishes to all.

Alex R. Hernandez, Jr.

[1] https://www.bls.gov/news.release/pdf/empsit.pdf accessed April 4, 2020

[2] https://www.marketwatch.com/story/americans-struggle-with-sudden-job-loss-from-coronavirus-2020-03-28 accessed April 4, 2020

[3] https://www.investopedia.com/how-to-pay-your-bills-when-you-lose-your-job-4801711 accessed April 4, 2020

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