BANKRUPTCY AND OTHER MAJOR CONSUMER PROTECTION LAWS IN RESPONSE TO COVID-19

The CARES Act (The Coronavirus Aid, Relief, and Economic Security Act) was signed into law on March 27, 2020. This article describes the main CARES Act provisions affecting consumer protection and links to specific Act provisions. This article also lists many actions by state governors, federal and state agencies, businesses and others that provide consumer protections during this crisis.

Bankruptcy Changes

CARES Act § 1113(b) excludes stimulus checks and other payments from being considered as income for purposes of the chapter 7 means test and for determining in chapter 13 cases the amount to pay unsecured creditors. These payments are excluded from “currently monthly income” under Bankruptcy Code § 101(10A) and “disposable income” under § 1325(b)(2). This permits debtors in bankruptcy cases to keep stimulus payments and not have them used to pay creditors or deny bankruptcy relief. This provision applies to any case filed before or after enactment of the CARES Act.

However, the CARES Act does not create an exemption for these payments. Because stimulus payments are refundable tax credits, they may be property of the debtor’s bankruptcy estate depending in part on the timing of when they are received, not unlike the receipt of tax refunds and EITC payments. To the extent stimulus payments are estate property, attorneys should attempt to claim them as exempt under available federal or state exemptions, such as wildcard exemptions.

CARES Act § 1113(b) also prevents current chapter 13 cases from failing by permitting debtors to extend the term of their plans in order to have additional time to pay critical debts. Many debtors will lose income and not be able to stay current with plan payments. While courts will likely suspend payments during the crisis in any event, existing law would not have permitted debtors to extend their plans beyond a term of five years. If plans could not be extended, many debtors would not be able to cure mortgage defaults, pay car loans and other secured debt, or pay priority claims such as tax obligations and child support. CARES Act § 1113(b) permits a debtor who has experienced a material financial hardship due, directly or indirectly, to the COVID-19 pandemic to seek a modification of the plan that will extend the period of time for payments on claims for up to seven years after the date the first payment was due after plan confirmation. This provision applies to any chapter 13 case in which the plan was confirmed before enactment of the CARES Act.

U.S. Trustee Program Notice to Chapter 7 and 13 Trustees Regarding Recovery Rebates Paid to Consumer Bankruptcy Debtors (April 7, 2020) affirming that stimulus payments should not be included in the calculation of current monthly income or projected disposable income, and in a chapter 7 filed on or after March 27, 2020, the U.S. Trustee expects that it is highly unlikely that the trustee would administer the payment. For chapter 13 cases filed before March 27, 2020, the recovery rebate is excluded from that analysis because it would not have been available for payment to creditors in a chapter 7 case.

U.S. Trustees Office re Audits: Effective immediately, the USTP is suspending its designation of new individual chapter 7 and chapter 13 cases subject to audit for an indefinite period.

Federal Foreclosure and Eviction Suspensions; Mortgage Loan Forbearance

CARES Act Relief from Foreclosure: CARES Act § 4022 provides foreclosure relief for “federally-backed loans,” which means loans (for 1–4 family properties) purchased, securitized, owned, insured, or guaranteed by Fannie Mae or Freddie Mac, or owned, insured, or guaranteed by FHA, VA, or USDA. See § 4022(a)(2). To determine if a mortgage loan is “federally-backed,” see “Determining If a Mortgage Loan is Federally Backed,” infra. About one-third of residential mortgages are not federally backed and thus not covered by the CARES Act. These homeowners (and tenants) will have to rely on future federal action or state orders, described at “State Limitations on Foreclosures and Evictions,” infra, or on voluntary actions by mortgage servicers.

Under the CARES Act, a servicer of federally backed mortgage loan may not: initiate any judicial or nonjudicial foreclosure process, move for a foreclosure judgment, order a sale, or execute a foreclosure-related eviction or foreclosure sale. The provision lasts for not less than the sixty-day period beginning on March 18, 2020. This provision is not limited to borrowers with a COVID-19 related hardship. See § 4022(c)(2).

Under the CARES Act, homeowners with federally backed mortgage loans affected by COVID-19 can request and obtain forbearance from mortgage payments for up to 180 days, and then request and obtain additional forbearance for up to another 180 days. During a period of forbearance, no fees, penalties, or interest shall accrue on the borrower’s account beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract. The covered period appears to be during the emergency or until December 31, 2020, whichever is earlier. See § 4022(b), (c)(1).

CARES Act Forbearance Rights for Multi-Family Properties (5 or more units) and Rights of Their Tenants: The Act provides for different forbearance rights for owners of multi-family property, and also provides that tenants are protected from eviction if the owner seeks such forbearance. See CARES Act § 4023.

CARES Act Protections Against Eviction: During the 120-day period beginning on the Act’s March 27, 2020 enactment date, the lessor of a “covered dwelling” may not file a court action for eviction or charge additional fees for nonpayment of rent. See CARES Act § 4024(b). After that 120-day period, the lessor cannot require the tenant to vacate until it gives the tenant a thirty-day notice to quit. See § 4024(c). A covered dwelling is one where the building is secured by a federally backed mortgage loan or participates in certain federal housing programs. See § 4024(a). A large number of governors have also initiated suspensions of all residential evictions in their states, as listed infra.

Analysis of CARES ACT Eviction Protections: The National Housing Law Center has issued an analysis of federal and state eviction suspensions, “Enforcing Eviction Moratoria: Guidance for Advocates” (April 3, 2020).

Determining if a Mortgage Loan Is Federally Backed: The CARES Act foreclosure and forbearance provisions apply only to “federally backed mortgages.” In addition, prior to CARES Act enactment different federally backed mortgage investors had announced different foreclosure policies (see “Links to Foreclosure Suspensions by Federally Backed Mortgage Investors in Effect Prior to the CARES Act,” infra). It is thus imperative to determine if a loan is federally backed and which investor is the backer: Fannie Mae, Freddie Mac, Federal Housing Administration (FHA), Veterans Affairs (VA), and the U.S. Department of Agriculture’s Rural Home Service (RHS). The following tools let one quickly determine which investor backs a particular homeowner’s mortgage loan.

• Fannie Mae and Freddie Mac have easy loan look-up websites to determine if they own a mortgage. See https://ww3.freddiemac.com/loanlookup/ and https://www.knowyouroptions.com/loanlookup#.
• To determine if a loan is FHA-insured, look for an FHA case number on the mortgage document, specific language in the mortgage and note forms, or through the payment of an FHA premium on the mortgage statement. In some cases, unfortunately, loans may have been stripped of their FHA-insured status; call HUD’s National Servicing Center at 877-622-8525 if there are questions.
• A VA-guaranteed loan also has specific language in the note and mortgage identifying it as a VA loan, and there are fees paid to the VA noted in closing documents.
• While a borrower with a mortgage directly extended by the RHS will be very familiar with the agency, homeowners with privately serviced RHS-guaranteed loans often do not know the loan’s status. If an RHS-guaranteed loan is suspected, directly ask the servicer to review the homeowners’ closing documents.

Links to Foreclosure Suspensions by Federally Backed Mortgage Investors in Effect Prior to the CARE Act:

FHA — https://www.hud.gov/sites/dfiles/OCHCO/documents/20-04hsgml.pdf
VA — https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_8.pdf
USDA Direct (bottom of page 1) — https://www.rd.usda.gov/sites/default/files/USDA_SA_COVID19_SFHContinuity03202020.pdf
USDA Guaranteed — https://www.rd.usda.gov/sites/default/files/USDA_RD_SA_Foreclosure_and_Eviction_Relief_COVID19_NationalEmergency.pdf
Fannie Mae — https://singlefamily.fanniemae.com/media/22261/display
Freddie Mac — https://guide.freddiemac.com/app/guide/bulletin/2020-4

Banking Agency Guidance on Mortgage Servicing and Loan Modifications

Federal Reserve, FDIC, NCUA, OCC, CFPB, and the Conference of State Bank Supervisors have issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (March 22, 2020).

State Limitations on Foreclosures and Evictions

A state-by-state list of eviction moratoria is now published by the National Housing Law Project, researched by students at Columbia and University of Pennsylvania. It includes 24 categories of information concerning eviction for each state.

Self-help and advocate eviction pleadings and forms: Go to lawhelpinteractive.org, click on the state on the map and search for self-represented or advocate materials. If there are forms available, you will be referred to the LSC-approved or court-approved websites where all forms are listed. Some states also have eviction expungement forms.

The Anti-Eviction Mapping Project has a listing of enacted and pending state and local actions related to evictions.
District of Columbia: D.C. Act 23-286 Section 202 (April 13, 2020) creates a forbearance program similar to the CARES Act but with additional provisions. Section 203 suspends evictions, rent increases, and other actions against tenants.

District of Columbia (evictions): The D.C. Superior Court Corona Virus Advisory (Mar. 13, 2020) suspends evictions of all tenants and foreclosed homeowners.

Maryland (judicial authorization for nonjudicial foreclosure), Administrative Order Maryland Court of Appeals suspension of evictions and foreclosures during Covid-19 emergency (March 18, 2020): Residential foreclosures and foreclosure of right to redeem after tax sale pending in circuit courts stayed effective immediately. Same for pending and scheduled evictions. New residential foreclosures and foreclosures of right to redeem after tax sales “shall be stayed upon filing.” Order to be revised “as circumstances warrant.”

Washington, D.C.: Judiciary orders suspends evictions of all tenants and foreclosed homeowners from March 14 to May 15; continued hearings on Small Claims, Debt Collection, Mortgage Foreclosure, Housing Court.

Fannie Mae, Freddie Mac, FHA, and VA to allow appraisals without interior inspections:

• Fannie Mae: Lender Letter (LL-2020-04) (Mar. 23, 2020)
• Freddie Mac: Bulletin 2020-5
• VA: Circular: 26-20-11
• FHA: Mortgagee Letter 2020-05
The Appraisal Institute and the Appraisal Foundation have extensive information on how COVID-19 is affecting appraisers.

The USDA has waived or relaxed certain parts of the application process for Single-Family Housing Direct Loans, including site assessments, and has extended the time period that certificates of eligibility are valid.

Student Loans, Other Debts Owed to the Government

CARES Act Relief for Federal Student Loan Borrowers: CARES Act § 3513 provides relief for student loan borrowers with Direct Loans and also for FFEL loans, but only those FFEL loans currently owned by the U.S. Department of Education. Critically, not protected by the CARES Act are borrowers with Perkins Loans and borrowers whose FFEL loans are still held by banks or guaranty agencies. One estimate is that this is upwards of 9 million student loan borrowers not covered by the Act.

Direct Loan and covered FFEL borrowers will have their payments suspended through September 30, 2020. See CARES Act § 3513(a). While student loan payments are suspended, the loans shall not accrue any interest and the month of a suspended loan payment will be treated as if a loan had been made for purposes of loan forgiveness and loan rehabilitation. See § 3513(b), (c). The suspension period will result in no negative credit reporting and also involuntary collection of the loan will be suspended—no wage garnishments, tax intercepts, offset of federal benefits, or any other collection activity. See § 3513(d), (e). Covered borrowers will be provided notices of all of these rights within fifteen days of the CARES Act’s March 27 enactment. See § 3513(g).

Department of Education Emergency Policy Prior to the CARES Act

Department of Education Press Release (March 20, 2020): All borrowers with federally held student loans will automatically have their interest rates set to 0% for a period of at least 60 days. In addition, each of these borrowers will have the option to suspend their payments for at least two months to allow them greater flexibility during the national emergency. This will allow borrowers to temporarily stop their payments without worrying about accruing interest. For more detail about the suspension of interest charges and payment forbearance, see this article from NCLC’s Student Loan Borrower Assistance site.

Department of Education, Coronavirus and Forbearance Info for Students, Borrowers, and Parents: includes more detail on the suspension of interest accrual and loan payments, with additional Q & A on other topics relevant to students in school, student loan borrowers, and their parents.

Treasury Offset Program Technical Bulletin # F2020-7 (March 26, 2020): Effective immediately, the U.S. Department of the Treasury has exempted the Social Security Administration’s (SSA) benefit payments from offset. This exemption will remain in effect through September 21, 2020. During this time, SSA benefit payments will not be offset to satisfy delinquent federal non-tax debts in the U.S. Treasury Offset Program. This is largely duplicative of CARES Act student loan provisions for Direct Loan and certain FFEL student borrowers, but protects other student loan borrowers and others owing government debts, such those owing mortgage deficiency judgments arising from FHA loans. For more on federal government collection of debts, See NCLC’s Collection Actions Chapter 10.

Protection of CARES Act Payments to Individuals: The CARES Act provides for $1200 payments to many Americans with an additional $500 for each child. These amounts are generally protected from seizure by the United States for debts owed to the United States. See CARES Act § 2201(d).

State Actions Regarding Utility Service and Telecommunications

Suspension of Lifeline Terminations. The FCC, In the Matter of Lifeline and Link Up Reform and Modernization, WC Docket No. 11-42 (March 30, 2020) waives certain rules so as to ensure that consumers enrolled in the Lifeline program do not lose access, at least until May 29, 2020. The Lifeline program provides qualifying low-income consumers discounts on voice or broadband Internet access service. The FCC is suspending rules that are the most common reasons for consumers to lose Lifeline access: the usage requirement and general involuntary de-enrollment procedures, and recertification and reverification rules. To ensure existing Lifeline subscribers do not lose service, the order directs the Universal Service Administrative Company to pause any involuntary de-enrollment of existing subscribers.
State Utility Commission Suspension of Utility Disconnections: Maryland and the District of Columbia have imposed a moratorium on utility terminations. The list is growing, but as of now government bodies have ordered disconnection suspensions statewide in:

In addition, click here to see statements from every state utility commission as to its policy re COVID-19 and disconnections. This state tracker is being updated frequently. Additional updated information can be found here.

State Limits on Collection Lawsuits, Post-Judgment Remedies, Debt Collection, Repossessions (Private Creditors)

District of Columbia: D.C. Act 23-286 Section 207 (April 13, 2020) during the emergency and for sixty days thereafter, no creditor or collector shall initiate or threaten a collection lawsuit; initiate, threaten, or act upon a garnishment, seizure, attachment, or repossession; visit, threaten to visit, or confront the consumer in person. No debt collector during that period shall communicate with the consumer. Certain exceptions apply.

Is a debt collector a non-essential business? A list of state orders for the closure of non-essential businesses is found here. When a state closes non-essential businesses, does this relate to debt collectors? This may depend on the specific wording of a governor’s order. Nevada explicitly defines collectors as a non-essential business, but West Virginia’s order provides that they are an essential business.
Another issue is that debt collectors may be calling from out-of-state, and thus whether they should be closed may depend on a closure order in their state of residence and not the state where the consumer resides. On the other hand, a state’s closure order may apply to out-of-state debt collectors who are licensed in the state that issued the closure order.

Another question is whether debt collectors can communicate from their homes even if they cannot communicate from the debt collector’s usual place of business. Existing state law may limit locations from which collectors can initiate communications. Washington State is a good example. Washington State’s shelter in place order that went into effect March 26 requires non-essential businesses to close in person operations. Since debt collectors in Washington are only licensed to work at their designated collection offices, this should stop Washington State debt collectors from communicating with consumers.

A debt collection industry trade association, ACA International, has a list providing for a number of states links to and summaries of business closure orders.

What about repossessions? Unclear is whether a vehicle repossession is in violation of a cease business order, and also whether the seizure in these conditions should be considered a breach of the peace, particularly if the repossession occurs while the debtor or others are present.

Maryland on March 19 signed into law House Bill 1663 that during the state of emergency prohibits retailers from unfair price gouging for essential goods like food, fuel, medicine, medical supplies, and cleaning products, and affirms that such action is subject to the enforcement by the attorney general.

The federal regulators that oversee federal banks are encouraging banks to work with their customers to help them meet their financial needs, including waiving certain fees, increasing credit limits for some borrowers, and offering payment accommodations including modifying terms on current loans due to temporary financial hardship due to COVID-19. For more information, see materials by the Office of the Comptroller and the Federal Deposit Insurance Corporation.

Note: Many banks agree to waive various fees for customers upon request. The best course is to contact a consumer’s bank and request waiver of fees because of a COVID-19 related hardship. The bank is not required to do so, but many banks will.

Fair Credit Reporting

CARES Act § 4021 provides less than minimal protections regarding credit reporting. From January 31, 2020 until 120 days after the end of the national state of emergency, if a creditor has made an accommodation (such as a forbearance or workout) for a consumer pursuant to the state of emergency, the creditor shall report that account with the same status as prior to the accommodation to a consumer reporting agency. That is, if an account was current it shall continue to be reported as current, while a delinquent account shall continue be reported as delinquent. The exceptions are (1) the provision does not apply to charged-off accounts and (2) if the account was delinquent and the consumer manages to bring the account current during the period of accommodation, the account shall be reported as current.
Stopping Automatic Payments from Bank Account

When cash is tight, payments that are automatically deducted from a consumer’s bank account may not be the most important bills to pay. Instead the consumer may want to stop those payments and save the money for critical needs. This information from the Consumer Financial Protection Bureau including sample letters which may prove helpful in stopping automatic payments.