There's really no denying it now. The COVID-19 outbreak sweeping across the US and most of the world has fundamentally affected individuals and families everywhere. As the realities of the situation continue to evolve, the all too real economic effects of the pandemic are becoming painfully clear.
Official reports as of April 16, 2020 indicate that more than 22 million Americans have filed for unemployment in the US, far and away the highest number at any point in US history. For so many households, the situation has now become a question of how long they can keep their heads above water before sinking to financial ruin.
Thankfully, measures are being taken, both at the federal and state level, to counter the harsh financial implications of the COVID-19 pandemic. If you have been wondering what will happen to your student loans, mortgage or other consumer debt you were servicing before the coronavirus, there may be legal relief for you.
Along with the Coronavirus Aid, Relief and Economic Security Act (CARES Act) passed by the US Congress, the Iowa State government has announced certain palliative measures for consumer debt relief.
In this article, we explain what relief is available for consumer debt and what steps you can take in order to benefit from these measures.
Mortgage and rent payment
The CARES Act introduces two protections for homeowners with impending or already outstanding mortgage payments:
- A right to forbearance: This means if your mortgage payments were impending before the coronavirus or have since become due, you can ask to have your payment obligation deferred. The relief is available to those who are experiencing financial hardship due to the pandemic. If granted, you can enjoy relief from your payment obligations for up to 180 days and you may request one extension for up to another 180 days. During the period of forbearance, no fees, penalties or additional interest can accrue on your account, beyond the already schedule payments. You must contact your loan servicer to request this relief.
- A foreclosure moratorium: The CARES Act also provides foreclosure relief for mortgage loans that have already become due. The moratorium on foreclosure actions runs for 60 days starting from March 18, 2020 and prohibits all judicial and non-judicial foreclosure actions, including a finalizing a foreclosure judgment or sale during the period. It does not matter if your failure to pay on the initial loan was due to COVID-19-related difficulties or not.
It is important to note that the reliefs provided by the CARES Act only apply to either wholly or partly federally backed mortgages. These include loans backed by the Department of Housing and Urban Development, Fannie Mae and Freddie Mac. How do you know if your mortgage is federally backed? You can check this resource for more information.
In addition to the relief against mortgage payments and foreclosure, the Act also provides relief against eviction for tenants in “covered dwellings”. A covered dwelling is one where the building is secured by a federally backed mortgage loan or that participates in federal housing programs. Homes covered by this provision will enjoy a 120-day relief from eviction starting from March 27, 2020. After the period expires, they can only be evicted upon receipt of a 30-day notice.
State of Iowa also announced a suspension of all foreclosure proceedings in the Governor's March 22, 2020 Proclamation of a Disaster Emergency. The proclamation suspends commencement or continuation of foreclosure proceedings on residential, commercial and agricultural property in the state.
Student loans and other government debt payments
The CARES Act provides further relief from payments for student loans. As per the provision, all payments on Direct Loans and Federal Family Education Loans (FFEL) are suspended till September 30, 2020. However, only FFEL loans currently owned by the US Department of Education qualify for relief. The loans will not accrue any interest during the period as well and the suspension will not result in any negative credit reporting.
The CARES Act also makes provision for payments of $1,200 to qualified Americans, with an additional $500 for each child. These payments are protected against seizure by the US for any debts owed to the government. In addition, the US Treasury has exempted benefit payments made to individuals by the Social Security Administration from offset. This means your SSA benefit payments will not be deducted to satisfy any non-tax debts owed to the federal government.
Credit cards, arranged overdrafts and personal loans
While there is no state directive currently mandating banks or credit card providers to provide relief at this period, there are some measures in place. The Office of the Comptroller and the Federal Deposit Insurance Corporation are encouraging banks to explore ways to help their customers at this time. Some of the recommended measures include waiving certain fees and modifying terms on current loans to account for temporary financial hardship due to COVID-19.
Apart from this, several banks and lenders are taking individual measures to provide relief for customers affected by the pandemic. You can check this resource to see what your bank or lender is doing to support customers at this time.
Utility service and disconnection
The Federal Communications Commission has waived certain rules to ensure that consumers enrolled in the Lifeline program do not lose access to critical utilities. The Lifeline program lets qualifying low-income earners access discounts on voice and broadband internet services. Under previous FCC rules, including involuntary disenrollment rules, some of these may have lost access to the service if the rules were enforced. Now, the FCC has ordered that enforcement of these rules be paused, at least until May 29, 2020.
The State of Iowa has also imposed a moratorium on utility terminations. The moratorium came from the Iowa Utilities Board which issued an emergency order on March 27, 2020, directing that disconnection of electric, natural gas and water utilities to consumers be paused for the duration of the COVID-19 pandemic.
For bankruptcy payments, the CARES Act excludes COVID-19 stimulus checks and other payments from being considered as income under a Chapter 7 bankruptcy means test. It also excludes these payments from being used to determine the amount to pay unsecured creditors in Chapter 13 bankruptcy. The provision applies to bankruptcy proceedings commenced before and after the enactment of the Act.
However, these payments are not exempted in bankruptcy proceedings. This means that they cannot be claimed as exempt property under normal bankruptcy exemptions, such as wildcard exemptions.
The Act makes further special provisions regarding Chapter 13 repayment plans. First, it allows debtors in current plans to extend the term of their plans if they are unable to stay current with plan payments. This gives them additional time to pay critical debtors and priority claims such as tax obligations, child support and mortgage defaults. Second, the Act allows a debt who has experienced a financial hardship due to COVID-19 to apply for a modification of their repayment plan. They can extend the time for payment of claims under the plan for up to 7 years after the date of first payment was due.
The measures discussed in this article show that if you are troubled by consumer debt at this period, there are several possibilities to manage your liabilities. If you are unsure how to proceed with these or if you want advice that is a bit more specific to your case, do not hesitate to contact us at the Smith Law Firm, PLLC.
Our consumer bankruptcy attorneys and debt relief experts are available to counsel you on your options and steps you can take.