How to Manage a Temporary Loss of Income

A lot of my clients end up filing bankruptcy because of a temporary loss of income. So if you’re living paycheck to paycheck and you miss one or two of those paychecks, suddenly you’re behind. And even when you get back to work, you can have a hard time getting caught up. Hi, I’m Joe Jeppson, consumer bankruptcy specialist, helping people reach financial freedom and Kansas City through chapter seven and chapter 13 Bankruptcy. So the first thing you’d want to do when you realize you’re going to have a somewhat extended loss of income is to focus on your priorities. Usually your housing, your car, you need a place to live and you need an ability to get to work when you’re going back to work again so most mortgage companies and car lenders will offer forbearance due to financial hardship because they would rather lose a couple of months of payments than for you to default on the loan entirely.

So reach out to them, see if you can skip a few payments so that the lost income doesn’t impact you as much as it would, if you were paying everything. Other things won’t offer that same, forbearance, but will allow you to set up installments. So if you’re behind on the income tax or the real estate tax, your utilities are behind and call and see if you can set up payments. We want to keep your expenses as low as possible for the time being, but it’s better to pay 50 bucks a month on the lights. Then the $700 that you owe so see what you can do to lower your monthly expenses some lenders like federal student loans, offer income-based repayment plans, meaning that you show them what your current ability to pay is. And they reset your minimum payments sometimes down as low as $0 per month, which is still a payment.

It’s just a payment of $0. And that keeps you from a delinquent or default status on those loans. You want to prioritize your current needs over your past debts. Meaning things like medical bills can wait, but it’s still okay to pre-pay necessary medical services. I just don’t worry about the old bills, until you’re able to make those payments. A lot of my clients rely on credit cards or PayPal, the loans to bridge the gap but that’s, it’s better to tighten your belt and to do without temporarily than to try and maintain status quo in your standard of living. If you don’t have the income to sustain that, payday loans are going to have three and 400% interest and being incredibly difficult to repay once you’re back to work, credit cards are going to be in the mid 20% interest and also difficult to repay.

And they’re among the most those two are among the most aggressive collectors filing lawsuits in garnishing your wages, which will be a long term decrease in income that makes it hard to stay current on the house and the car and the medicine, those other necessary items. So if you’re dealing with a long-term loss of income, you can look at a lower interest option, like a refinance of your home or home equity line of credit. You could borrow money from friends or family often has no interest problem with those is those are kind of permanent situations that you can’t really fix meaning if you were to end up having to file a bankruptcy. Anyway, you’re not going to be able to get rid of a loan against your home without getting rid of your home. And while the court may say, you don’t have to pay mom back, you may not get invited to Thanksgiving anymore.

So try to avoid, borrowing money from family and where possible, you may qualify for reverse mortgage. If you’re 62 or older than reverse mortgage is where you kind of flip the whole payment structure so instead of making a payment each month that pays some of the principal down and then pays interest and taxes and insurance. If you have enough equity in your home, they may stop requiring any payments at all. And instead of your total balance, going down a little bit every month, it’ll go up every month as they use the equity in your home to pay the interest and the taxes and the insurance, and then sort of an insurance policy also, because if they bet that you’re going to live another 10 years and you live another 30 and you’re out of equity, you still don’t have to make payments. That’s just their bet.

But if you do eventually move or die, then they would sell the house to pay the balance of the loan. And if your heirs want to keep the home, they just refinance or otherwise pay the mortgage to release that lien. If decreasing your expenses, isn’t going to be enough they may want to look at ways to increase your income. sounds stupid, but there are ways to do that temporarily like unemployment insurance, workers’ compensation, disability, income, child support, social security, food stamps, WIC, VA, disability, or pension. All of those are income sources that are available if you qualify. So look for those options. Those are not charity. Those are social benefits.