Dealing With Financial Hardship during the COVID-19 Outbreak

Financial Wellness By Noah - May 4, 2020

The coronavirus pandemic has been a powerful reminder that health, for ourselves and our loved ones, is more valuable than just about anything else. After you’ve done what you can to protect your family from illness, though, new concerns arise. The tough truth is that most bills keep coming.  

What Are My Options if I’m Dealing With Financial Hardship as a Result of Coronavirus Shutdown?

A lot is still uncertain about the full effects of a pandemic, but it’s clear that coronavirus-related shutdown has already caused financial hardship for a lot of people.

What qualifies as financial hardship?

If paying taxes would leave you without enough money to support your family, you may be eligible for financial hardship consideration from the IRS. The IRS defines national standards for basic expenses like food, clothing, and household necessities. If you can demonstrate that you don’t have money left after meeting those expenses, then the IRS may put you under “Currently Not Collectible” or CNC status. CNC status pauses your tax obligations to the IRS, so even if you owe taxes, you won’t have to pay them for now due to your financial hardship.

What is a hardship refund?

As you may imagine, it can be difficult to go through the process of getting CNC status from the IRS. One alternative option if outstanding taxes would be a serious financial burden for you is to apply online for an alternative payment plan. A hardship payment plan may be an easier solution to access and still ease some financial stress if you owe taxes.

If you were expecting a refund, but the refund is going to be withheld because you owe a Federal debt or child support payments, you can submit a hardship refund request (Form 911). This may help you get all or a portion of your tax overpayment (the funds that would be your refund).

How do I apply for financial hardship?

Qualifying for CNC status with the IRS involves submitting a lot of sensitive financial information. Your best strategy is to speak with a certified accountant to make a plan, but you can begin by learning more about what materials you’ll need to provide to the IRS.

If you owe Federal student loans, you can apply for economic hardship deferment by submitting a request. If you have private education loans like Sallie Mae, go to your lender’s website to look for deferment or forbearance options. Credit card agencies and banks may also offer hardship programs that lower interest, waive fees, or pause payments, especially if you’re facing hardship due to the coronavirus pandemic.

What happens if I cannot pay my mortgage?

If you have a federally-backed mortgage (meaning it is backed by a federal agencies such as FHA, VA, USDA, Fannie Mae, or Freddie Mac) and are experiencing financial hardship due to the COVID-19 pandemic, you have a right to request forbearance – a temporary pause or reduction in payment for a limited period of time – for up to 180 days. You also have the right to request an extension for up to an additional 180 days. 

If you request forbearance, there won’t be any additional fees, penalties, or interest added to your account, but your regular interest may still accrue.  Because of this, it is very important to ask your servicer (the entity that sends you your mortgage statement or manages your loan) exactly how you will be required to pay back the amount owed after the forbearance period. Learn more about what to do when your mortgage forbearance ends here.

If your mortgage is not federally backed, you should still reach out to your loan servicer for assistance.  Regulators have encouraged all financial institutions to work with borrowers who are or may be unable to meet their obligations because of the effects of COVID-19.  Your servicer should help you identify alternatives that may be available to you given your specific circumstances.  Your state may also be implementing various mortgage relief options in addition to the federal initiatives in the CARES ACT.

Either way, it is critical to first contact your loan servicer to request a forbearance and see if you indeed qualify for it.  If you’d like to speak to an expert, find a list of HUD-approved housing counselors here.

What happens if I cannot pay medical bills?

Hopefully, you and your loved ones will stay safe and healthy throughout the course of the pandemic. If you do get sick, whether from COVID-19 or another illness, here’s how to handle any costs you may be responsible for.

What kind of debt is a medical bill?

Medical bills are a common source of debt for Americans. Unlike a home loan or credit card, medical bills aren’t usually an expense you plan for in your financial life! It’s frustrating to think that an expense that feels outside your control (i.e., you couldn’t help getting sick and needing treatment) can damage your credit.

In order to help keep medical debt from hurting credit, the National Consumer Assistance Plan states that medical debt won’t appear on your credit report until after an 180-day waiting period. You’d use that time to work with your health insurance and the medical provider to settle the debt or make a payment plan.

How do you get medical debt forgiven?

If you’re looking at major medical expenses, even after insurance, the first thing you should do is request an itemized invoice from the medical care provider. You’re entitled to see each expense individually. In some cases, medical providers may waive fees for certain services. Other times, there might be errors that you can dispute to lower your bill. 

Once you’ve reviewed the bill and argued any items that seem incorrect, the next step is to discuss a payment plan with the medical provider. Again, it’s possible that they will settle for a reduced total in the interest of working out a manageable payment plan.

What happens if I cannot make credit card payments?

If you found yourself with credit card debt when the pandemic hit, you’re not alone.  More than 189 million Americans have credit cards, and on average, each household with a credit card carries more than $8,000 in credit card debt.  Results from Noah’s own “Household Finances Tracker” (in partnership with Elucd) show that as of April 27, 34% of respondents have already considered or already skipped a payment on a credit card, car loan, or personal loan as a result of the coronavirus crisis.

What are my options for credit card payment relief?

Many credit card issuers are offering alternative hardship programs that lower interest, waive fees, or pause payments, especially if you’re facing hardship due to the coronavirus pandemic. To receive assistance, the best place to start is to call your bank and let them know that you have been impacted financially due to the coronavirus pandemic.  Many hardship programs for credit card issuers include waiving late payment fees, deferring or forgiving interest charges, or offering forbearance programs.

Similar to mortgage forbearance programs, it’s important that you understand exactly how you will be expected to pay back the amount owed after the forbearance period, as well as what the credit card issuer will (or won’t) be reporting to credit card bureaus during the period.  Find a list of how many major banks are working with credit card holders here.

Facing your finances during a pandemic can be scary but what matters is that we’re in this together. Make sure you file for unemployment if you qualify. The more we share information and help each other when we need it, the more ready we’ll all feel to tackle any challenge with confidence. For additional help, check out our post on managing your finances during the pandemic.