I woke up this morning thinking not about wall street investors but about the guy who was counting on selling hot dogs at the NCAA tournament at Rocket Mortgage Field house to catch up on his christmas credit card charges, the Cleveland Police Patrolman who was counting on overtime on St.Patricks day to pay his daughter’s college tuition and the self employed vendors who sell jewelry and crafts at kiosks every year during the Cleveland International Film Festival. While the lessons learned in the 2008 recession sparked reforms and changes to protect those investors and banks on Wall Street, no such reforms were put in place for hourly employees, self employed people or those in the service industry who will lose income while the rest of us comply with the Governor’s orders to engage in “social distancing”.
Many such workers have no or inadequate health insurance. Many have no paid sick leave. More workers yet have oppressive student loan payments to make, mortgage payments that have been approved based on using 40% or more of their Gross Income or are renters who face a quick and certain eviction if they don’t make their monthly rent payments.
My firm represents regular people who fall behind on their bills, are facing foreclosure or who have disputes with collectors, credit card companies or mortgage servicers We had the privilege of helping many such people weather the last recession and here is our advice for those facing now certain fiscal challenges:
- If you can’t make payments on any debt obligation don’t put your head in the sand. Reach out to creditors to explain your situation and to ask for forbearance other adjustments to your account. Most importantly, communicate with mortgage servicers, credit card companies, landlords and other creditors in writing and keep copies of that correspondence. Most companies allow communication by email which creates a permanent record of what you promise them and what they promise you.
- Take a close look at automatic payments being charged to your credit cards or bank accounts. Cancel those that you aren’t absolutely sure will have funds to pay .Bank fees are out of control and can cost hundreds of dollars and automatic payments without sufficient funds can cause a cascade of bounced checks and late fees from other creditors.
- Avoid borrowing your way out of the situation. There are lots of online and mail solicitations for “debt consolidation” lenders or payday lenders. Often these loans which might provide short term relief will cause you to fall further in debt in the long term. Working with existing creditors is a much more sensible approach. Similarly avoid those who promise to negotiate your debts for you for a fee. If you can’t do it yourself call a lawyer.
- Do not ignore anything that is delivered to you in person or by regular or certified mail from a court. The vast majority of collection cases go undefended, garnishments, bank account attachments or judgment liens can follow quickly. Believe it or not there are often defenses to collection actions, evictions and foreclosures. Call a lawyer if you are sued even if you think you can’t afford one. Most firms will provide free phone or in person consultations and there may be fee-shifting or counterclaims that might entice a lawyer to take such a case on a contingency.
- Keep an eye on your credit report. There are free services such as Credit Karma that will notify you immediately if a creditor reports you delinquent or puts a claim in collection. Communication with the creditor or an explanation on your credit report might mitigate the damage to your credit score. If someone is misreporting your credit, contact a lawyer right away because you make have protections under Federal Law.
- Avoid taking money from your retirement accounts. Withdrawals will cause tax consequences that you might regret next year and they are the only assets most people have that are exempt from collection efforts. If you end up filing bankruptcy thoses assets will be lost forever.
There are also steps the state and federal government can take to quickly pump money into the economy and keep working people from financial ruin. Right now, No one in government at any level is proposing any measure that will offer meaningful relief to hourly and self employed workers. Here are a couple of ideas that would do both provide relief and fiscal stimulus:
- Suspend the Obligation to pay government student loans. Offer immediate forbearance with no accruing interest. These will give immediate relief to borrowers who are not working or have reduced income and give spending power to those who are to keep the economy moving forward. The Secretary of Education and the President could do this with the stroke of a pen.
- Put a moratorium on negative credit reporting for the duration of the pandemic and for six months after. This will allow borrowers who were not in default before the crisis to maintain their positive credit rating and interest rates.
- Suspend the obligation to pay tuition at state community colleges and universities. The closure of dorms is costing Ohio families tons of money and the precarious finances of many parents and self supporting students would be stablized by not having to make tuition payments due during the course of this emergency. Payments could then be spread out over remaining years or extended until after graduation.
- Allow Fannie Mae Freddie Mac, FHA and VA to suspend their rules about how often and how many modifications of mortgage loans are allowed. This coupled with forbearance upon proof of reduction or elimination oemployment would help working people weather this storm.
- Allow student loans and home mortgages to be modified in bankruptcy. This reform is long overdue and will provide both creditors and debtors with a fair forum to make sure that borrowers can pay the most they can while maintaining stable housing and jobs.
- Expand unemployment insurance to include sick days related to the outbreak and waive the one week waiting period for the duration of the crisis.
