Debt Management Legal Issues During the COVID-19 Outbreak
The COVID-19 pandemic has dealt a significant blow to the financial security of many people and businesses across the U.S. Consumers may find that their debts accumulate much faster than they can pay them. While bankruptcy might seem like an obvious solution, a debtor may be able to avoid this extreme step by exploring alternatives with creditors and lenders. The federal government and many state governments also have taken steps to ease the burdens on consumers during the coronavirus crisis.
For example, people who are struggling to keep up with credit card payments may be able to ask the credit card company to refrain from collection efforts or increase their credit lines. Financial institutions may agree to restructure a loan by deferring payments or extending the loan term. Issuers of auto loans may allow a debtor to defer payments so that they can keep their car. Owners of small businesses should be aware that the Small Business Administration of the federal government is providing coronavirus relief.
Mortgage Debt
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a forbearance to homeowners with federally backed mortgage loans who are suffering from a financial hardship that has resulted directly or indirectly from the coronavirus outbreak. In general, these are loans that are purchased or securitized by Fannie Mae or Freddie Mac, insured by the Federal Housing Administration, insured or guaranteed by the Department of Veterans Affairs, or insured, guaranteed, or made by the Department of Agriculture. Certain other loans that are insured under Section 255 of the National Housing Act or Section 184 or 184A of the Housing and Community Development Act of 1992 also qualify.
These forbearances will last for up to 180 days. Homeowners can request an extension for an additional 180 days during the covered period, which initially ended on December 31, 2020 but was recently extended to June 30, 2021. Borrowers who entered forbearance on or before June 30, 2020 are entitled to up to six months of additional mortgage payment forbearance in three-month increments. A borrower with a federally backed multi-family mortgage loan can request a forbearance for up to 30 days, with two 30-day extensions. Mortgage servicers cannot charge fees, penalties, or additional interest related to a forbearance. While the CARES Act does not cover mortgage loans that are not federally backed, a homeowner still might be able to negotiate for a forbearance or another type of relief, such as a waiver of late fees. (If you do not know whether your loan is federally backed, you can ask the servicer.)
A forbearance only delays payment on a debt, rather than canceling a debt. A homeowner thus will need to catch up with mortgage payments after the forbearance period ends, so they should not request a forbearance unless they need it. The missed payments may be resolved through a lump sum payment or a repayment plan, or a homeowner may be able to work out a loan modification. While mortgage servicers may tell homeowners that they will need to pay back the missed amounts as a lump sum, this is likely not true, and you may want to consult an attorney if you receive this statement. Any agreement reached with a mortgage servicer should be documented in writing.
Foreclosure and Eviction Protections
On September 1, 2020, the Centers for Disease Control (CDC) issued an order suspending evictions for eligible renters. The CDC’s order suspended residential evictions for non-payment of rent from September 4, 2020 to January 31, 2021. This date has since been extended by President Joseph Biden to March 31, 2021. The eviction moratorium does not relieve a tenant’s obligation to pay rent once the moratorium expires, including rent that came due during the moratorium.
The CARES Act applied a foreclosure freeze to properties secured by federally backed mortgage loans. It prohibited landlords of federally backed properties and certain other covered properties from starting an eviction proceeding based on non-payment of rent or charging penalties related to non-payment of rent for 120 days between March 27 and July 24, 2020. Once the foreclosure freeze expired, a landlord could evict a tenant only after providing a 30-day notice. A landlord of a property secured by a federally backed multi-family mortgage loan could not evict a tenant for non-payment of rent or charge related penalties during a forbearance period if the landlord received a forbearance.
Meanwhile, many states and counties have suspended foreclosures, evictions, and sheriff’s sales for varying periods. Some states and counties have frozen property tax foreclosures and tax sales. If your mortgage servicer has started a foreclosure process in court, it may stall temporarily due to court closures and delays in hearings.
Student Loan Debt
The CARES Act suspended payments on federal student loans held by the Department of Education until September 30, 2020. President Biden directed the Department of Education to extend this suspension until at least September 30, 2021. Any collection actions, wage garnishments, or Treasury offsets related to student loans must stop until the coronavirus national emergency expires. A failure to pay student loans cannot result in negative credit reporting during this period. These rights take effect automatically, without action by the debtor.
Utilities and Telecommunications
Various state and local governments have suspended utility shutoffs due to lack of payment or late payments. Outside these areas, some companies have voluntarily agreed to suspend shutoffs and waive late fees for these reasons. Providers of phone and Internet services have taken similar steps. Existing customers may receive access to unlimited data for a certain time, while other people may receive free Internet service for a set time if they sign up with a provider offering this incentive.
Creditor Agreements and Credit Reports
If you were not previously delinquent in making payments, a creditor must report your account as current to credit reporting agencies if you reach an agreement with the creditor on a forbearance, a loan modification, a payment deferral, a partial payment, or other types of relief related to hardships caused by the COVID-19 outbreak. To trigger these protections, you must keep complying with the terms of the agreement. A creditor is free to continue reporting any pre-existing delinquency.
You should check your credit reports regularly to make sure that the creditor is following these rules. If you notice a violation, you can dispute the report and file an explanation with the credit reporting agency, which must include it with any report that contains information about the alleged delinquency.
