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Collections and Creditors Rights During the Coronavirus Pandemic

On Behalf of | Apr 16, 2020 | Business

Coronavirus (COVID-19) has caused serious negative economic consequences. Both borrowers and creditors are wondering how they are going to survive the next few months financially. Additionally, Congress has passed several laws that regulate how some creditors can collect debt in response to coronavirus. Many Illinois courts have closed or are only accepted cases of high importance during the coronavirus. If you are a creditor, you are probably concerned about how you will collect debts from your borrowers.

Some Types of Debt Collection are Prohibited as We Fight Coronavirus

Debt collection has not stopped due to coronavirus, but not for all sectors. If you are a debt collector, you will still be able to collect debts unless the federal government or your local government has prohibited debt collection. The federal Education Department has suspended the collection of federal student loans.

The federal government has urged private student loan debt collection agencies to stop collecting from borrowers, but debt collection agencies are not legally prohibited from seeking repayment. Indeed private debt collection agencies have continued filing actions in court to collect payment for student loans.

The Department of Veterans Affairs has Stopped all Debt Collections

Under federal guidelines, the Department of Veterans Affairs has postponed all debt collections. The VA has also extended deadlines for those filing applications for benefits. As of April 3, 2020, the VA will no longer collect on the debts of newly established Veterans. It is also much easier for veterans to request extended repayment plans. Veterans who have debt related to VA benefits or VA health care plans can contact the VA for assistance. They can also request a forbearance from their mortgage company to delay payments on VA loans.

The VA is also working to ensure that borrowers who are unable to make their payments will be evaluated to take part in the VA’s Loss Mitigation option. They will also be able to waive late fees from the loans that are affected. Finally, all credit reporting will be suspended to avoid damaging credit records.

The Federal Government Ordered up to a Yearlong Break on Mortgage Payments

Homeowners who have become unemployed or lost income due to the coronavirus outbreak will get some relief. They may be eligible to have their mortgage payments suspended or reduced for up to 12 months. Federal regulators have ordered lenders to offer flexibility to homeowners. Half of all home loans will be protected as they are guaranteed by Fannie and Freddie.

Those borrowers who qualify and can show that they have lost income can make reduced payments or request a complete stop in payments. Unfortunately, some homeowners might see this news and decide that they will just stop paying their mortgage. Mortgage lenders can still collect on borrowers who have defaulted on their mortgages and have not officially requested forbearance with their loans. Even those homeowners who qualify for a delay in payments or reduced payments will eventually need to repay the amount of their mortgage.

Freddie and Fannie have received instructions to not to report borrowers who are part of the forbearance plan to credit bureaus for missed payments or late payments. However, when homeowners just stop making payments without going through the government process of qualifying for the forbearance programs, mortgage lenders can report the missed payment to credit bureaus.

Chicago Has Temporarily Stopped Some Debt Collection During Coronavirus 

Mayor Lori Lightfoot of Chicago recently halted some types of debt collections in the city due to the coronavirus. The city will temporarily halt debt collection and ticketing practices through April 30th. These prohibitions might continue longer than April 30th depending on the impact of coronavirus. The city is waiving penalties on utility bills, city debts, and vehicle tickets. The city will cease collections through private debt collectors.

Illinois Has Taken Measures to Protect Borrowers

The Illinois Department of Financial and Professional Regulation announced steps it will take to help consumers and borrowers during the coronavirus pandemic. They are encouraging banks and credit unions to take the following actions:

  • Provide new loans and favorable terms to consumers and businesses
  • Offer payment accommodations to those struggling to make payments
  • Waive fees for overdrafting, late credit card payments, and other debt
  • Increase the daily cash withdrawal limits for ATMs
  • Increase the limits for credit cards for creditworthy borrowers
  • Alert customers to the risk of scams
  • Remind customers to contact their creditors and banks before entering into financial assistance programs
  • Ensure that consumers do not experience a disruption in services

Creditors must provide notice if they close their physical locations due to health reasons. They must offer borrowers reasonable ways to make their payments so that borrowers can avoid becoming delinquent. Consumers who face financial difficulties should receive affordable loan options.

The Governor of Illinois Has Issued a Pause on Evictions

On March 20. 2020. Illinois Governor Pritzker issued an executive order pausing all evictions from rental units and homes. The state is urging mortgage lenders to defer mortgage payments for 90 days for those suffering a coronavirus-related financial hardship.

Consumer Debt Collection During Coronavirus

Governor Pritzker’s Order did not list debt collection as an essential business that can remain open during the shutdown. However, debt collectors can and do work from home effectively during the pandemic. Illinois is encouraging, but not forcing debt collectors and debt buyers to accommodate hardships due to coronavirus.

They are encouraging debt collectors to stop collection activities for at least 60 days. However, neither the federal nor state government of Illinois has legally required debt collectors to stop collecting on debt. Creditors must continue to follow the same legal guidelines when it comes to when they can and cannot collect a debt.

Contact Our Debt Collections and Creditors’ Rights Law Firm

If you are an Illinois debt collector, you are probably concerned about all of the new regulations related to coronavirus. You may be wondering how you will be able to collect debt effectively during this pandemic. Contact our Illinois debt collection and creditor’s rights law firm today to schedule your initial consultation.