For approximately 380,000 federal employees on furlough and another 420,000 working without pay, many people may be asking how they can protect themselves from creditors. The terms of your agreements with these parties vary greatly based upon your contracts with them. Therefore, you should review any agreements carefully. We first suggest calling your creditor, landlord, or mortgage holder directly, as time is of the essence.
You should also follow up with written communication explaining your situation and, if an oral agreement has been reached, the terms of that arrangement. Do not simply skip payment without any form of communication.
Although a creditor is generally under no legal obligation to waive/delay a payment obligation, they may be willing to make some alternative payment arrangements. For example, some companies are offering “promise to pay” programs or delaying enforcement against federal employees who are in default. Also, lenders may be willing to modify your loan agreements and defer unpaid amounts (sometimes until the expiration date of the loan). Again, however, you should not rely on any such relief without communicating with these creditors.
Federal employees should also understand their rights in the event that a creditor wishes to enforce a default in payment. Virtually all creditors will need to file a lawsuit against you and obtain a judgment from an appropriate court before they can pursue your assets (bank garnishments, wage garnishments of temporary jobs, sales of your property, etc.). This will take many months and also gives you negotiating power with your creditors. The exception to this rule is when your debt is secured by an asset. For example, when you purchase a vehicle, that vehicle is almost always collateral for the debt. Therefore, in those circumstances, the creditor can immediately repossess the vehicle without filing a lawsuit.
Many federal employees are worried that they may lose their homes to foreclosure. If a federal employee is unable to pay the mortgage debt, you should take comfort in the fact that it can take many months before the lender is able to evict you from the property. This process is governed exclusively by Michigan foreclosure and eviction laws and is very protective of homeowners. After a default is committed, the lender must first publish notice of a foreclosure sale in a local newspaper for at least four consecutive weeks. The foreclosure sale (auction) is then conducted by a deputy sheriff in the county where the property is located. Depending on the amount of money that the federal employee has paid during the life of the mortgage, that federal employee will have between six to twelve months to “redeem” the property after the sale is completed. This means that the employee has the right to repurchase the property for the price that was bid at the foreclosure sale (generally another lender would need to come forward and lend the money to do so). During this “redemption period,” the federal employee can continue to live in the property without making payments. If the federal employee does not redeem the property within that time, the lender would then need to file a lawsuit to evict the federal employee from the property. This generally takes another two months. The explanation of this long foreclosure/eviction process is not meant to promote a delay in communication with the lender but should make the federal employee feel better that they will not be evicted from the property for quite some time after a default is committed.
If you are unable to pay your rent under a lease agreement, the process is much quicker than a foreclosure but the landlord will still be required to serve a formal notice of default required by the courts, followed by the filing of a formal complaint for eviction. The eviction process generally takes about two months to accomplish. Again, you should contact your landlord immediately to explain your situation and attempt to work out an alternative payment arrangement.
We understand that federal employees on furlough and those working without pay are in a very tough situation. However, it is important to communicate with your creditors, explain your situation, and attempt to resolve the situation as quickly as possible. Most creditors are more understanding than you may think.
Scott A. Breen is an attorney and shareholder at Willingham & Cote’, P.C. in East Lansing, Michigan. Mr. Breen also has a Master of Laws degree (LL.M.) in taxation. He specializes in the areas of business and real estate transactions as wells as hospitality and alcohol beverage law. Mr. Breen may be reached at 517-324-1021 or sbreen@willinghamcote.com.
