Episode 4 -Legal Talk: Managing Debt Beyond COVID-19 and the CARES Act
The federal government is sending checks. But what happens long after the CARES Act money dries up? What do we do then? What payments take priority? What about child support? Mortgage? Car payments? What options do you have if you can't pay your bills? Michael R. Rethinger, a well-respected Atlanta bankruptcy attorney, joins TWMI Podcast to talk about the lasting financial effects of COVID-19 on working men and families, and how you can manage moving forward.
(Recorded March 29, 2020) www.debtbankruptcylawatlanta.com/
Mike Except: A lot of working families are going to be in a position where they may not be able to go back to the job that they were working before, and they may be looking at having to retrain, and I think that's going to be something that we're going to be looking at, not just our federal government, but our state and local governments as well.
Opening: You're listening to The Working Man Interview, a podcast about building purpose with conversations on issues facing men in the middle class hosted by Rutland Walker, founder of Union Up.
Rut: So with all the talk about financial fallout from COVID-19 and the stimulus package, unemployment skyrocketing, I wanted to explore from a legal perspective, options to help keep and stay solvent during this time and to make sense of the best financial options for working men and for families. And my guest today is Michael Rethinger. Mike is an attorney based out of Atlanta, Georgia who helps clients protect their property and stop harassment by creditors. Mike has a well-respected reputation in the courts here for being able to handle the most complex personal bankruptcy matters and he's often requested by other debtor attorneys when they run into tough legal issues. So I wanted to get Mike on as a guest. Mike, welcome.
Mike: Thanks for having me on, Rut.
Rut: It feels like we're in this sort of buffer period where there seems to be short term relief coming in the form of the federal government, but for working people, how do you see this playing out over the next six, eight, 10-weeks from now?
Mike: Well, I think that that question is going to vary depending on you know, the sort of job that you have for those people that are in the restaurant or bar industry or the gig economy driving Uber or those sorts of things their income is basically moved to zero unless you're able to figure out some other way to replace that income in the short term. The CARES Act, which is the COVID-19 that just passed on Friday was signed into law, looks as though they're trying to get some direct payments to individuals based on your adjusted gross income. So there's going to be a check that's going to be coming to you if you have received social security or if you have filed your taxes for the last two years. There's not a whole lot more information as far as timing on that right now you can check on the IRS website and basically the update right now is no information available yet, but that is going to be money that is going to be going to individuals. If you make up to $99,000 a year, it starts phasing out at 75 so that's gonna be about $1,200 for an adult $500 for kids under 16 for a maximum, I believe of $3,400 so that may be some much needed help, but you know, if that's this week, that's next week, if that's three weeks from now, we're not sure yet. And so that's one of the ways that they're looking at trying to help individuals. There's also obviously small business owners that they're trying to provide some relief for as well in the form of loans that may or may not have to be paid back. And there's some good information on the US chamber of commerce regarding the coronavirus emergency loans, kind of a four page document. It's basically a small business guide and checklist and then pegging that to are you employing people and how likely are you to continue to pay your employees in the short term two to four months it looks like.
Rut: You used a word earlier that I thought was a good one because I think this is where people's head is right now in terms of like short term triage financial triage, what they need to know. So from your perspective, what do working families need to know about their financial options if they're troubled financially due to the pandemic and what options do they have beyond this stimulus package payments?
Mike: Well, I think that the first thing that people need to realize is that they need to pay for the things that they have to pay for and determining what that is. If you're a homeowner, you got to figure out if your mortgage payments have been suspended. And so any federally backed mortgage, you have the ability to ask to suspend your mortgage payments for a period of time and that's probably around two thirds of mortgages and you just have to figure out if you have an FHA or VA backed loan, anything through Fannie or Freddie, that's the number one clarity. Your home is your biggest asset. You have to protect that. If you start falling behind on that, Georgia has a particularly quick foreclosure rate where they only have to advertise and legal organ of the county for four consecutive weeks before foreclosing on the first Tuesday of the month, so it seems as though some lenders, private lenders are foregoing foreclosures, but there is nothing that is federally or state mandated that had stopped as of now. Kind of the next most important debt that most people have is going to be your car payment, how you get back and forth to work. Obviously if you're not going back and forth to work right now, it may not be as big of an issue, but it's still your primary means of transportation. And some of the car lenders are also offering voluntarily to work with you as far as suspending some payments on those, some of the major car lenders or Santander, Ally, Wells Fargo, those sorts of places. So those are going to be the first two things that you definitely want to make sure that you're taking care of.
Rut: What about other obligations that people have, like child support and alimony and all the way down to credit card debts? Where do they rank in terms of what you need to be worried about right now?
Mike: I would say that child support and alimony are also a major issue. I think that with a lot of the courts being, state courts being shut down because most child support or alimony are state court ordered obligations, it's going to be difficult to get back in front of a judge to ask for a modification, but that may be something that you may want to be talking with whoever you're supposed to be making these payments to in order to see if there's some sort of voluntary arrangement you may be able to come up with. Again, these are court ordered obligations, so those are going to rise much higher than your credit cards or other unsecured debt, student loans, those sorts of things, and obviously the issues with disobeying court orders is there could be jail time which you'll also potentially be looking for. So that's definitely something that you're going to want to make sure that you're staying on top of. As far as whether or not courts are going to be allowing modifications due to this, I think it's going to be on a case by case basis and I think we're going to see the court systems get real busy with that in the near future. A lot of my colleagues who practice in the family law arena are kind of seeing that as well as possible uptick in divorces with people being stuck inside with each other...
Rut: Yeah, yeah, unfortunately I see that as a possibility too. So let's say a guy is making child support payments and he loses a job as a result of this thing. What is the stimulus package mean to him and what are his options at that point? Do they take those payments out of his stimulus package? Do you know what the ramifications there are?
Mike: Well, so I think it's going to depend on how he's paying the child support. If he's paying it through an agency, a lot of times those agencies will intercept tax refunds, so one would think that possibly they may intercept this check as well. Since we haven't had any checks. I don't know the answer to that yet, but that's definitely something that I would be concerned about if it's getting paid through the agency. If you're still making the payments directly to the recipient, that's going to be less likely because it's something that you're making a payment voluntarily on. I think it's also going to depend on are you up to date on those payments currently or is there, are you currently in rears? Are you behind on these payments? So I think it's going to vary depending on a number of things, but that would be a concern that that may be something that these checks may get intercepted. I would hope that wouldn't be the case. But...
Rut: You mentioned the mortgage thing, the forbearance options that have been extended to consumers. And I have noticed in the press that there are several lenders, in fact, I read something on your Facebook page, a list of lenders that have extended some sort of forbearance and it seems like it's by lender some are 30 days, some are 90 days, etc. What options do homeowners have who have a mortgage with a lender who does not offer specific forms of forbearance? You know, that haven't put out some sort document that talks about that. And I know there are several because I'm one of them. Is there any legal recourse for someone who has a mortgage with a company that hasn't formally announced some sort of forbearance program?
Mike: You're going to be protected by just the regular FCRA (Fair Credit Reporting Act) and FDCPA (Fair Debt Collection Practices Act) sorts of regulations. Reg X, Reg Z. I have a good friend and colleague who actually specializes in litigating with mortgage companies to make sure that they're following those rules. I mean the issue is going to be if you're got to make a choice as to whether or not you're going to feed your family or make a mortgage payment and mortgage company's not working with you, you gotta do what you gotta do. They've got to follow a very specific set of rules that they do put you into foreclosure. One of the things that I do with people who are are facing that sort of situation is what we'll usually look at as a Chapter 13 bankruptcy, which will allow you to stop a foreclosure and catch up on those payments over a period of time. One of the changes that's coming in the bankruptcy law as part of this is that they're actually extending the amount of time that a Chapter 13 can last from five years to seven years to give people a little bit better chance to be able to pay back the debt that has to be paid back.
Rut: As a result of this situation?
Mike: Yes. As a result of this situation, that is a change. They're basically extending the maximum amount of time you can be in a payment plan to seven years. For those who aren't familiar, it just kind of a brief synopsis between the difference between a Chapter 13 and a Chapter 7- Most people when they hear the term bankruptcy are thinking of a Chapter 7 bankruptcy. What you're doing in a Chapter 7 is you're telling the court you got a certain amount of income, certain amount of expenses, and you ask the court just to wipe out debt. Now, Chapter 7 is also a liquidation, so if you've got a significant amount of equity in your home, they may look at trying to sell your home in order to pay back your debt. So it's very important that you understand exactly what you're doing when you're filing either a Chapter 7 or a Chapter 13. There are certain types of debts that are not dischargeable in Chapter 7 tax debt. If you want to keep a house or a car, you may have to do what's called a reaffirmation agreement where you're putting that loan back into child support. Student loans generally aren't dischargeable in a Chapter 7 either. If you're dealing with debts to a secured lender, a mortgage, a car loan, your child's courtarea, those are things that you may be able to fix in a Chapter 13 by paying back the amount that you're behind over a period of time or in the case of a car loan, we may be paying off the entire car through the bankruptcy and that's kind of a way to get you some immediate relief. I don't think I'm going to see huge influx of bankruptcies in the near term, couple of weeks, a month, but I think that as this continues and people still don't have income and these programs where lenders are voluntarily working with consumers or we're going to start to see some collection activities get ramped up again and I think that's when we're going to starts seeing a significant upswing in the amount of bankruptcies that are going to be getting filed.
Rut: That's what I was asking you about earlier about, you know, I see this in the next three or four weeks, people will be getting checks. They are getting some relief from their mortgage lenders. There are other lenders that are trying to be a part of the solution, but at some point, you know, six, eight, 10 weeks from now that that all runs out. Is that what you're talking about?
Mike: That's exactly what I'm talking about. But the issue at that point is going to be where are we as far as being able to generate income again? Are we still at the point where we're at stay at home or social distancing, and a lot of working families are going to be in a position where they may not be able to go back to the job that they were working before and they may be looking at having to retrain. And I think that's going to be something that we're going to be looking at. You know, not just started our federal government, but our state and local governments as well as far as how do we get this thing back on track. But you know, as far as protecting your immediate things, yes, a bankruptcy would allow you to do that. It's probably gonna take some creative planning in order to be able to deal with some of this stuff if there is an income coming in immediately, but you would be able to get the relief or stopping your car creditor from repossessing your vehicle or stopping the mortgage company from foreclosing on your home if we get to that point.
Rut: So when does that situation get to the point where someone might, they're managing their debt right now, but at some point, what is the situation they get to where someone might need to think about restructuring their debt formally like you're talking about?
Mike: Generally speaking, you're not looking at a foreclosure until you're usually three months behind on your mortgage. At that point, that's when you see most lenders hire an attorney in order to conduct a foreclosure and then you're going to know you're in foreclosure because you're getting a set of certified letter to the little green card in your post office and then you're probably going to get a slew of advertisements from bankruptcy attorneys and realtors who are asking you if you want to sell your home. As far as the car goes, most major lenders are going to start calling. If you miss a payment, they're going to start calling a whole lot when you miss two probably looking at repossession effort at three months as well. The reason why you want to deal with those debts before you deal with the credit cards is all the credit card companies can do is call you. In order for them to take something from you, they have to go into state court, file a lawsuit against you, get a judgment which is going to take at least 45 days and then they can look at starting to garnish your wages or bank accounts. So if you get to the point where they file a lawsuit, then at that point then you're looking at taking some action on those sort of unsecured debts.
Rut: Let's say someone gets to the point where they need to restructure their whole deal and they would contact someone like yourself. What is the first, second and third thing that happens? I mean when you enlist the help of an attorney, does payment obligations immediately stop there for a period of time or how does that work?
Mike: So basically what would happen if someone called in to me and said, I've got some issues with some debts. What I'm going to do is I'm going to talk with them. Usually even before, I would talk to them on the phone for 15 or 20 minutes, make sure that's something that I can actually help with. Prior to this, I would actually sit down with them for an hour, hour and a half, in order to actually be able to write the case. And what I'm looking at is what income do you have coming in? What are your expenses? Who do you owe money to? The whole point of a bankruptcy is you have to list all of your assets and all of your debt. And so what we're doing is we're coming up with a plan where we're either looking at wiping out as much of the debt as we can or coming up with a plan to be able to protect your stuff by paying back things over a period of time. And so you're probably looking at two hours of time, you know, as far as meeting with an attorney, gathering documents. And then once we actually file the case, you're usually looking at a filing fee of a little bit over $300 and different attorneys are going to charge different things as far as an attorney fee retainer. Most consumer bankruptcy attorneys try to keep that on the lower side because we understand obviously people are having issues with money. Right. In a Chapter 13 your first plan payment would come due 30 days after file. So if you filed it on the 15th through first payment would come to on the 15th. Most mortgage payments are due on the first year usually making those mortgage payments direct unless you're under some sort of voluntary or federally mandated relief under this COVID-19 CARES Act.
Rut: Last question and I'll let you go and thank you for spending some time with me. I feel like I can't be the only one who's tired of reading the bad news. It's like Groundhog day. I get up, I read the stories in the press and it's all the same thing. What light at the end of the tunnel, if any, do you see for those families who may be in debt as a result of this pandemic?
Mike: I think that if we're following the advice and we can kind of get through to the other side of this, which means stay home, observe the advice of the experts. My friends that are doctors are telling me, stay home. We've got enough people at the hospital as it is. We don't need any more sick people here. Don't break any bones. If we can get through this and get to the other side, I think that we're going to see that this economy is going to come back. I think that there may be some changes in the economy and I think those may be some good things. I think that this is really focusing a lot of people's attention on individuals and consumers as opposed to big corporate tax cut relief and those sorts of things. And I think that that's one of the things that when you go through something as a people and individually you kind of wake up a little bit and maybe you start paying attention to what are my elected representatives doing? How is this helping, me and my family next door as opposed to Delta or Coca-Cola. Those sorts of things.
Rut: Like what happened in 2008
Mike: That's exactly right where all of that money got sucked up by, you know, the big corporations and now that none of that money actually went to the people who are actually hurt by that recession. I think it's a matter of being a vigilant citizen. I think that is the best thing that you can do is just pay attention and make sure that your elected representatives know where you stand on these issues.
Rut: I do worry about this huge stimulus package being a catalyst for inflation. I worry about paying $19 for a dozen eggs kind of thing. You know? Have you thought about that in terms of its effect on inflation and some of the more macro economic conditions that might come, sort of the law of unintended consequences?
Mike: Yeah, absolutely. I mean one of the big things that I saw, and this is three months ago before any of this stuff even started happening was when the yield curve inverted, which basically means that they're having to pay people to save money, which is not a good set of circumstances. Every time this happens we go, we see a recession, which is obviously hard. This got flamed a lot higher. Before they passed this CARES Act, the federal government is giving out money for free. They took the prime rate all the way down to zero, which they don't have any more ammo there. All they can do is inject more money into which is going to lead to inflation. They don't have any way to help people spur borrowing when it must be going to negative interest rates, which God forbid that happens. So yeah, I think it's definitely something to be concerned about. I mean, I hope that the people who are looking at this from the fed level are thinking of these things. I found it very troubling that they immediately went down to zero at the beginning of this when we started seeing the first tremors in the stock market because they shot their shot. There's not much ammo they have left at this point in order to try and try and fix those fears about inflation.
Rut: Yeah, I agree. It's something that weighs on me because I think there are going to be some laws of unintended consequences and I'm afraid that's going to be one of them. How does that affect your business when that sort of thing happens?
Mike: Well, I think that, so the issue is what I ended up doing a lot of is families budgets and when right now you can kind of live on, you know, $100 a week, is reasonable to be able to live on for groceries, right? $430 a month. You can survive on that. It's not beanie weenies every day, but it's also not eating out at, you know, Ruth Chris. If we see that that $430 is by and half the amount of food, it's gonna be a whole lot tougher to be able to keep people in any sort of payment plan where they're having to, you know, protect their house and their car.
Rut: Yeah. Agreed. So if someone wanted to get in touch with you, how would they do it?
Mike: Best way you can always give me a call (770) 922-0066 and email is firstname.lastname@example.org, @mratldk is also my Twitter and my Facebook. You can find me on LinkedIn most of the other stuff as well. And I'm always happy to answer questions. There's not a charge for me to get in touch with me and have a chat, see if it's something that I might be able to help with.
Rut: Mike, thank you very much for taking time to spend with us.
Mike: Absolutely Rut. I appreciate you having me on.
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