COVID-19 Protections are Expiring, but You Can Still Get a Fresh Start

By Kelly M. Walsh, Esq.

In March of 2020, the CARES Act and state governments put in place several financial protections for Americans to help cushion the financial blow they would feel from COVID-19 shutdowns. As we enter August, the impact of the virus is ongoing, but financial protections are ending. Many Americans who have been holding on through financial hardship with those protections in place will find themselves unable to catch up in time now that the protections are lifting. Rather than look to government for further relief that may not be coming, why not use the legal protections that have long existed to give those in financial hardship a fresh start?

First, you may be wondering which protections have expired or will be expiring soon. The CARES Act enhanced unemployment insurance, which added $600 per week to unemployment benefits, expired July 31, 2020. The foreclosure moratorium on federally backed properties has already expired for certain types of loans and will expire on August 31, 2020 for Fannie Mae and Freddie Mac mortgages. The eviction freeze for federally-backed properties expired on July 25, 2020. Pennsylvania’s eviction moratorium, which includes bars to filing, suspension of eviction hearing, extension of deadlines, and a stay of any existing judgments of possession, will expire on August 31, 2020. Student Loan forbearance expires on September 30, 2020, and student loan payments will come due in October.

Homeowners affected by COVID-19 can still request up to 12 months of forbearance on mortgage payments. However, this should be done with caution. Make sure you understand when those missed payments will come due. They may all come due at once at the end of the 12 month period. That means you could just be lulling yourself into a false sense of security only to lose your home suddenly to foreclosure with an out of control amount of mortgage arrears when the forbearance ends.

You can also still take a 401(k) distribution without the 10% early distribution penalty through end of 2020. However, I would strongly advise against taking retirement distributions. You will still have to pay income taxes on the retirement distributions, so you will be depleting your retirement by about 15-20% more than just the funds you receive. More importantly, though, an early distribution from retirement defeats the purpose of having a retirement account at all and makes you more vulnerable in your most vulnerable years. The purpose of your retirement account is to sustain you into old age when you are unable to work. You should be preserving and adding to it. The United States Bankruptcy code provides an unlimited exemption to protect retirement accounts and prioritizes that protection above the debts you would likely be paying with a retirement distribution. You may be depleting an asset that could be protected with bankruptcy to pay debts that you would not have to pay if you filed for bankruptcy.

There is some hope for another round of stimulus payments and financial protections, but there is very little time for Congress to reach an agreement before they go into recess. Even if additional relief comes through, it may not be enough to pull everyone out of the financial holes they have fallen into. There is a very real possibility that Americans will need to find another solution. Fortunately, the United States Bankruptcy code already provides a means for Americans to seek relief from overwhelming debts and achieve the goal so many have in mind—a fresh start.

Although it has long held a social stigma, bankruptcy is a powerful tool that allows an overwhelmed consumer or business to reorganize debts and emerge with leaner and more manageable finances going forward. Depending upon the chapter for which you qualify, there are a lot of options that could be available to help you restructure your debts. Some of those include:

• Stop your creditors from calling you and sending you collection notices
• Wipe out unsecured debts, such as credit cards and medical bills
• Stop a foreclosure and force your mortgage company to accept a 5-year payment plan for you to get caught up again
• Stop an eviction and catch up on your back rent through a bankruptcy plan
• Stop a lender from repossessing your vehicle, and catch up on your vehicle loan
• Reduce the amount you owe on your vehicle
• Get out of a lease that is costing you more than it’s worth
• Pay off back taxes and get rid of the penalties
• Consolidate all your debts into one monthly payment that is within your means, or even eliminate them entirely
• Stop paying interest and late fees on credit cards and other out of control debts
• Regain control of your finances and get a fresh start

People often worry that they will lose their homes, cars, and other possessions if they file for bankruptcy. In fact, it is usually exactly the opposite. Most people are able to keep their homes, cars, retirement, and other assets even after they file bankruptcy. Bankruptcy actually is a powerful tool that allows people to save those items from creditors who would otherwise take them away.

Call Scaringi Law today at 717-657-7770 and set up a consultation with an experienced bankruptcy lawyer who can help you get on track to the fresh start you need. Ask about our consultations and affordable bankruptcy fees to see how much it could save you on your out of control debts.