Unpaid Federal Workers Face Tough Problems With Creditors
The government is, at the time this post is written, shut down. For many federal workers, this means that they will likely get paid when the government “re-opens,” but until then, many are reporting to work as normal, without being paid. Although on a much smaller scale, a lot of what federal workers in this situation are going through reminds us of what most of the population went through during the economic downturn in 2007-2008.
Closed Periods of Unemployment
As many attorneys who represented borrowers and homeowners know, the recession of the mid 2000s unemployed a great many people. A large percentage, however, did eventually find new employment, and many even made about the same money they were making beforehand.
The problem is that most creditors don’t care about whether you are “back on your feet.” Much like government workers, who are working for no money during a closed period of time, people who were unemployed and then re-employed in the mid 2000s often found themselves earning a check again, but in dire straits with creditors—even when consumers reached out to them, as the government is advising federal workers to do.
Take the average credit card as an example. If you don’t pay the bill for three months, it is possible the entire account is sent to collections—a huge hit to consumer’s credit score. Even if it is not sent to collections, many credit cards have “poison pill” APR provisions, where interest skyrockets to 20% or more for one missed payment.
Now a consumer has damaged credit (and thus, will pay more for credit going forward because of it), and although he or she may now be making an income again, the interest added so much to the amount due during the period of unemployment that even the new income is not enough to bring an account current or pay it off.
Mortgages and Foreclosures
Mortgages are even less forgiving of these closed periods of unemployment. Many people missed 3 or 4 (or more) mortgage payments in the late 2000s as they looked for new work. When they found it, and wanted to start paying their mortgage again, the mortgage companies did not take their money unless they were able to pay back every previously missed payment.
Assuming an average $1,500 monthly mortgage payment, just 3 months without paying leads to having to pay $4,500 (plus interest and late penalties) to become current again.
Many consumers, having lived off savings during their unemployment periods, did not have that kind of money sitting in a bank account, even though they now had a job paying them a decent wage.
They soon found themselves employed, and maybe building up a savings over the next few months, but in foreclosure, because they could never amass the money needed to pay back the few months they couldn’t pay while they were unemployed.
This is all in addition to other creditors, such as landlords, car loan companies or medical providers, none of which will easily accommodate workers going unpaid during the shutdown.
The government is starting to prepare workers for these kinds of problems, but there’s no legal way to force or compel creditors to work with consumers affected by the shutdown.
Are you having problems dealing with creditors? Are you facing foreclosure? Contact Jacobs Legal in Miami today to discuss dealing with your debt collectors and mortgage companies.