What to Do When You Can’t Pay Your Bills
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The economic fallout from the coronavirus pandemic could be with us for quite a while. Unemployment has moderated, but even those who stay employed may face reduced hours or uncertainty about job stability.
If you’re in a situation where you can’t pay all your bills, or likely to be there soon, you may have some options to limit the damage to your finances.
Prioritize essentials
Before paying anything else, try to cover the basics: shelter (mortgage or rent), food and utilities. Transportation, cell phone service and child care are necessities if they allow you to work.
An emergency action by the Trump administration extended a federal ban on evictions for many renters through Dec. 31. You also may have stronger protections from your state or city.
People who have federally backed mortgages (including Fannie Mae, Freddie Mac, FHA, VA and Department of Agriculture) and who can attest to COVID-19-related financial hardship can request forbearance from their mortgage lenders. If you’re going to miss a mortgage payment, contact your lender about hardship options and consider talking to a housing counselor approved by the U.S. Department of Housing and Urban Development. You can call HUD at 888-995-4673 for round-the-clock foreclosure avoidance assistance.
Housing counselors can help renters, as well. Another good resource is Just Shelter, which can point you to local organizations fighting eviction and homelessness. Also, emergency rental assistance may be available. Start your search for help at www.211.org.
Your local 211 organization can also connect you to resources to pay for other essentials, including food and utilities. Regulators in some states have told utilities not to shut off service for nonpayment during the crisis; elsewhere many utilities have vowed to suspend disconnections. Many also offer lower-cost “lifeline” service or payment plans if you fall behind.
If your car payments are too expensive and you owe less than the car is worth, you may be able to refinance the loan. Otherwise, the best option may be to sell it and buy something cheaper, if possible. If you owe more than the car’s value, you may still be able to sell it if you can get a personal loan to cover the difference in what you owe. Try to avoid repossession, either voluntary or otherwise, since you’ll still be on the hook for any deficit and your credit will suffer.
Identify your next-level priorities
Taxes, child support and insurance are expenses that can have serious consequences when you fail to pay.
The IRS and state tax agencies can take a portion of your wages, seize money from your bank account and even send you to jail (although that doesn’t usually happen unless you’re deliberately committing tax fraud). Similar penalties await people who fail to pay child support.
Falling behind on insurance payments, meanwhile, can cause your policies to lapse, leaving you vulnerable to potentially catastrophic expenses.
Some options for relief:
The IRS pushed back the tax filing deadline this year, and many states followed suit. If you still weren't able to pay, look into ways to handle your back taxes.
You may be able to modify a child support agreement if you go back to court.
If your insurance is unaffordable, talk to the insurer about alternatives or shop around for a less expensive policy.
Now consider everything else
Access to credit can help you pay the bills when your income isn’t enough. Ideally you would make minimum payments on any loans or credit cards, since skipped payments can seriously damage your credit scores and cut off your ability to borrow. Miss enough payments and you could face collection calls, lawsuits and wage garnishment.
But some bills have a “pause” button. You can ask for forbearance on federal student loans, for example, which allows you to temporarily stop making payments. Since interest on federal education loans has been waived during the crisis, forbearance won’t increase what you owe. Plus, federal loans have income-driven repayment plans that potentially can reduce your required payments to zero. The U.S. Department of Education’s federal student aid site has details.
Meanwhile, some banks and other lenders are offering their customers more options after federal regulators encouraged financial institutions to help consumers affected by the pandemic. Contact your lenders to see what’s available and how to qualify for any assistance.
Unfortunately, sometimes the available help isn’t enough. A credit counselor’s debt management plan could allow you to repay your debt at lower interest rates. You can get referrals from the National Foundation for Credit Counseling.
You may also need to consider that bankruptcy could be your best option. It stops collections activity and legally erases many debts. The National Association of Consumer Bankruptcy Attorneys is a resource for referrals.
This article was written by NerdWallet and was originally published by The Associated Press.
