The Financial Impact of a Pandemic
When Hurricanes Harvey and Irma crashed into the United States in 2017, they took 33,000 jobs with them. Then, a novel coronavirus made its way to the United States in 2020, creating 281,000 jobless claims in the first two months. These are just two examples of the financial crises Americans have faced due to natural disasters and pandemics. If you’re one of the 78 percent of Americans living paycheck to paycheck, any disruption to the economy makes it difficult to pay your bills. Find out what can happen to bill payments during a pandemic or natural disaster.
Defaults During a Pandemic
If you don’t fulfill your payment obligations, you can default on the loan. Depending on the terms of the loan, you might default after missing a single payment or you might have months to fulfill your obligation. If you’re not getting a paycheck, you’re likely worried about defaulting if you lose your job or your hours are cut due to an economic downtown.
If you default on your financial obligations, you could go into collections and then face a debt lawsuit.
Collections During Economic Downturns
If you have a bill that is 31 days or more past due, it can go to collections. The lender sends your debt to a third-party collections agency to go after the payment. Debt collections are extremely stressful, especially during a natural disaster or pandemic when you aren’t sure when you’ll get your next paycheck.
During extreme disasters, the government can step in and halt collections. However, this is normally done on a state or citywide basis instead of nationwide, and the guidelines can change from one area to the next. For example, during the coronavirus pandemic, Chicago Mayor Lori Lightfoot temporarily halted the city’s debt collection process. However, private debt collectors could still go after borrowers. If you’re suffering through a pandemic or national disaster, see if your government is halting collections before you take action.
If your debt goes into collections and you still don’t pay, the creditor can file a debt lawsuit. Normally, the creditor attempts to collect the debt for several months before initiating a lawsuit. You’ll be served with a complaint and court summons, and you’ll need to go to court to attempt to win your case. If you don’t win, the creditor can take action to get its money back. This can include garnishing your wages, placing a lien against your property, or freezing the money in your bank account.
Debt lawsuits normally continue during pandemics and natural disasters, with an exception. Sometimes, courthouses close during pandemics and disasters. Take the coronavirus pandemic, for example. Within two months of coming to the United States, the virus managed to close or restrict 30 state court systems and dozens of federal courts. If the court is closed due to the disaster, your case will be delayed.
How to Avoid Defaults, Collections, and Lawsuits
You likely feel frightened if you can’t meet your financial obligations, but there is help available. The Consumer Financial Protection Bureau has asked financial institutions to be lenient on borrowers during times of a pandemic, such as the coronavirus. The CFPB encourages borrowers who cannot meet their obligations to contact their lenders and explain their situation. The lender might ask you to pay something until you are back to work, so determine how much you can pay. You’ll also need to explain when you can make regular payments.
Remember, the sooner you talk to lenders, the more desirable the outcome will likely be.
Also, the government and financial industry typically take additional steps during times of a pandemic.
Defer Credit Card Payments
Many credit card companies allow consumers to defer payments during pandemics and natural disasters. You might be able to defer without interest.
For example, during the coronavirus outbreak, Capital One, American Express, and others allowed people to suspend payments as long as they contacted the company. If you are in the middle of a natural disaster or pandemic and cannot meet your credit card obligations, reach out to your credit card company.
Defer Mortgage Payments
Making mortgage payments when you don’t have a steady paycheck isn’t just stressful. It can be impossible. The government understands that forcing people to make mortgage payments during a natural disaster or pandemic can create a housing crisis, so it usually takes steps to protect homeowners. For example, during the coronavirus pandemic, the federal government ordered mortgage forbearance of at least 12 months for qualified borrowers. Homeowners had to contact their mortgage lenders to work out a payment plan or pause payments until they were in better financial situations. Many people chose to extend the terms of their mortgage loans so they could go back to making regular payments once the financial crisis is over. HUD has also paused foreclosures and evictions during the pandemic.
These are just two examples of the way the government helps during economic downturns. If you are dealing with a financial crisis and cannot pay your mortgage, contact your mortgage company.
Student Loan Forbearance
The student loan burden is one of the biggest topics in politics today. Both sides of the aisle differ greatly when it comes to deciding what to do with student loans, but the two typically come together during times of crisis. The coronavirus pandemic provides another excellent example of this. The federal government allowed borrowers to stop paying student loans for 60 days. The government also waived interest fees during that period. Again, it was up to the borrower to take action to get a forbearance.
Don’t Wait to Act
Don’t make the mistake of ignoring your debts during a natural disaster or pandemic. If you can’t meet your obligations, your creditor or the federal government might help. You need to reach out to your creditors to find out if they are willing to work with you until you get back on your feet.
If your creditors won’t work with you, you still have recourse. You can seek legal help to represent you if you default on your obligations. You might qualify for bankruptcy to get out from under your debt, or you can consider a debt settlement where you pay less on what you owe. Consider all your options and choose the right one for you.