If your work hours have been reduced due to the COVID-19 pandemic, or you’ve lost your job entirely due to social distancing and quarantine, help is available. Everyone’s priority should be to stay home and stay safe, and not worry about what is happening financially to themselves or our economy.
Read on for the types of assistance you can apply for to help you weather this crisis.
5 Federal Assistance Programs Under the CARES Act
The federal Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) became law on March 27, 2020. The CARES Act provides for student loan forbearance, expanded unemployment benefits, Small Business Administration (SBA) loans and grants, foreclosure moratorium, and temporary mortgage and rent relief.
Federal Student Loan Forbearance
The CARES Act provides for a 6-month forbearance on all federal student loan payments during which debtors do not need to make monthly payments, and interest will not accrue. Payments will resume after September 30, 2020 unless further legislation is passed extending the forbearance period.
Unfortunately, the CARES Act provisions do not apply to Perkins loans, FFEL loans, or private loans, so you should contact your servicer or lender to find out if relief is available due to coronavirus-related financial hardship. If not, you must continue to pay each month unless your lender or servicer is offering relief.
Expanded Unemployment Benefits Due to the Coronavirus Pandemic
The Federal Pandemic Unemployment Compensation (“FPUC”) provision of the CARES Act grants unemployed workers 13 weeks of an additional $600 weekly benefit, which is paid on top of the benefit he or she is receiving through the state’s unemployment program.
The Pandemic Unemployment Emergency Compensation (“PUEC”) provision of the CARES Act increases the maximum number of weeks a worker can receive unemployment benefits to 39 weeks.
The Pandemic Unemployment Assistance (“PUA”) provision of the CARES Act expands unemployment benefits to those who are self-employed, independent contractors, have limited work history, or who have exhausted their regular or extended unemployment benefits.
New SBA Loans and Grants for Small Businesses and the Self-employed
Emergency Economic Injury Disaster Loans and Grants
The CARES Act created a direct loan product called EEIDL that is available to eligible businesses in designated disaster areas – now all 50 states. Sole proprietorships, those who are self-employed, independent contractors, and small businesses having 500 employees or less are eligible for EEIDL grants and loans.
For the rest of this year, eligible and approved applicants can receive an advance grant of up to $10,000, even if their application for an EEIDL is later denied.
PPP Forgivable Small Business Loans
The CARES Act also created the Paycheck Protection Program (PPP), relaxing the strict criteria for eligibility that usually comes with SBA loans. A PPP loan can be wholly forgiven if at least 75% of it is used for payroll and payroll costs, with the rest paying expenses such as mortgage interest, rent, and utilities.
The SBA Will Pay 6 Months of Other 7(a) Loans for You
For all other SBA loans taken between March 27, 2020, and September 26, 2020, the SBA will pay six months’ payments for you. It is possible to borrow up to $1 million under this program.
Under the CARES Act, active foreclosure suits are suspended, and new foreclosure actions cannot be filed for 60 days after March 18, 2020. During this period, foreclosure judgments cannot be entered and sheriff sales cannot be held. Homeowners are safe from foreclosure for this temporary period, which may be extended by further federal legislation depending upon how the coronavirus crisis plays out.
Temporary Mortgage and Rent Relief for Those Who are Struggling Financially Due to COVID-19
Relief for Homeowners
Federal lenders Freddie Mac and Fannie Mae are offering mortgage forbearance to borrowers experiencing financial hardship due to the coronavirus and mandated social distancing. Borrowers should apply for forbearance and provide their lender with proof of loss of income due to COVID-19. Successful applicants will not have to pay their monthly mortgage payment for 180 days, extendable for a second 180 days if still financially eligible.
Relief for Landlord and Tenants
The Federal Housing Finance Agency (FHFA) is offering mortgage forbearance to landlords in exchange for suspending eviction proceedings for non-paying tenants. During the COVID-19 crisis, landlords don’t have to worry about how they are going to pay their mortgage when no rent is coming in, and renters don’t have to worry about being evicted if they can’t pay the rent due to loss of income from the coronavirus pandemic.
COVID-19 Assistance from Private Lenders and Your State Government
Private Lenders Are Offering Forbearance Terms
Your lender wants to keep you as a customer and offering forbearance is much less expensive than suing you if you default on the loan. For this reason, some private mortgage and auto lenders are granting forbearance for up to 120 days if you call and explain that you have lost income due to the coronavirus pandemic.
Right now, Ally Bank is deferring monthly auto loan payments for up to 120 days, and Hyundai Finance is deferring loan payments for up to three months. Other lenders are sure to follow suit. Contact your lender or servicer to find out if you qualify for deferred payments.
Individual States are Mirroring and Expanding Upon CARES Act Provisions
State governments are providing financial relief during the COVID-19 crisis as well. For example, in Pennsylvania, the state Attorney General created a relief program for those with private mortgages and car loans, based on the CARES Act federal loan relief. PNC, Citizens Bank, Dollar Bank, First Commonwealth Bank, and OceanFirst Bank are currently participating in the program, and more lending institutions are expected to join. Borrowers can apply for the following relief:
- A 90-day grace period for auto loan payments;
- At least a 90-day grace period for mortgage payments.
- A 90-day grace period for late or overdraft fees.
- A 60-day moratorium on foreclosure, eviction, or motor vehicle repossession.
What Bankruptcy Can Do For You if You’ve Lost Income Due to COVID-19
Filing bankruptcy might be the answer for those who have lost income due to the coronavirus health emergency, and who are collecting unemployment.
Chapter 7 and Financial Hardship Due to the Coronavirus
Those who are unemployed will likely income-qualify to file Chapter 7 bankruptcy. Chapter 7 is a four- to six-month process during which all income, expenses, assets, and debts are disclosed, and a determination is made that the debtor cannot afford to pay his or her unsecured debt. That unsecured debt is “discharged,” meaning, the debtor is no longer responsible for paying it.
In a Chapter 7 filing, a debtor can:
- Get all credit card debt discharged.
- Get all medical debt discharged.
- Get a personal loan discharged.
- Surrender secured property, such as a house or car, that is not affordable.
Reorganizing Your Post-Coronavirus Finances with Chapter 13 Bankruptcy
For those with regular income – and unemployment might qualify – Chapter 13 offers an opportunity to catch up with mortgage, rent, alimony, or child support arrears over a three- or five-year repayment plan. After disclosing all income, expenses, assets, and debts, and proposing a repayment plan, a Chapter 13 debtor makes monthly payments to a Chapter 13 Trustee, who in turn pays the debtor’s creditors. At the end of the plan, any unsecured debt that was not repaid is discharged.
Chapter 13 can also be used to “strip off” a second mortgage and have it discharged as unsecured if the property’s current value is less than the amount owed on the first mortgage. A Chapter 13 debtor can also “cram down” an auto lender to the current retail value of the car and pay that amount off in his or her Chapter 13 plan, subject to interest at a rate of Prime plus 1-3%. Last, it is possible to have back-owed federal and state income tax discharged in Chapter 13, subject to very specific rules.
As you have read, there are many, many options you can exercise to ease the financial burden of job loss due to the COVID-19 crisis. If you have questions, consult with a debt relief and bankruptcy attorney.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy Philadelphia bankruptcy lawyer.