Debtor and Creditor

Losing a Job and Your Obligations to Creditors

By Amy Loftsgordon, Attorney
Learn what you can do if you lose your job and find that you may not be able to pay your creditors.

If you suddenly find yourself out of work, it can be a struggle to keep up with all of your bills. Fortunately, you might be able to reduce or suspend (delay) your obligation to pay rent, a mortgage, student loans, or other debts—at least temporarily. Keep reading to find out how.

Rent

If you’re a renter and lose your job, you must continue paying your landlord. But it might be worth a try to ask whether the landlord will accept partial rent, with a promise to pay the balance soon. Landlords who know a tenant is unemployed but actively looking for a new job are sometimes willing to accept partial rent for the first month, at least.

If you’ve been a good tenant in the past—you pay the rent on time and haven’t damaged the rental property—the landlord is more likely to work something out with you. Landlords often prefer to receive partial rental payments rather than take the risk that you’ll make no payments at all. If you stop paying rent altogether, the landlord will have no rent coming in at all, and her only recourse (short of letting you live there rent-free) will be to terminate the tenancy and, if you don’t move voluntarily, evict you. Evictions are expensive and time consuming. Most landlords prefer to avoid them and work with good tenants who are having momentary trouble paying the rent.

Mortgage Payments

If you own a home and can’t pay your mortgage, your lender might allow you to temporarily stop making payments or lower your payments through a forbearance agreement. Or, you might qualify for assistance from a federally-funded program, called the Hardest Hit Fund.

Forbearance Agreements

Most lenders will help you out if you’re suffering from a temporary financial hardship, like unemployment. For example, the lender might offer you a forbearance agreement.

In a forbearance agreement, the lender agrees to reduce or suspend your mortgage payments for a certain period of time—usually three to six months. This option gives you time to get back on your feet financially. The lender will not start a foreclosure during the forbearance period. When the forbearance is over, you resume making your regular monthly payments.

As part of the agreement, you’ll eventually have to repay the amounts that the lender previously let you skip. The good news is that there are usually a few ways to do this. When the forbearance period ends, you can:

  • make a one-time payment of the amounts you didn’t pay during the forbearance period
  • pay a little bit extra each subsequent month until you repay the outstanding amount, or
  • agree to a loan modification that adds the amount you still owe to the balance of the loan.

To apply for a forbearance agreement, contact your lender.

Mortgage Payment Assistance

Another option, if you live in one of the 18 states (or the District of Columbia) that has a Hardest Hit Fund program, is to apply for help from that program. The state-run programs, which are federally-funded, provide money and other forms of assistance to homeowners so they can avoid foreclosure.

Mortgage payment assistance is often available to homeowners who lose their jobs. For example, California’s program provides up to $3,000 per month for as long as 18 months to eligible, unemployed homeowners so they can make their mortgage payments.

To apply for help, visit your state’s Hardest Hit Fund website.

Student Loans (Federal and Private)

If you have federal student loans and lose your job, you might qualify for a deferment or forbearance.

Deferments and forbearances allow you to temporarily stop making payments or temporarily reduce your monthly payment amount. The main difference between these two options is that, for many types of federal student loans, you don’t have to pay the interest that accrues during a deferment period. The government pays the interest. You do have to pay the interest that accrues during forbearance. To apply for a deferment or forbearance of your federal student loans, call your loan servicer (the company you make your payments to).

If you have private student loans and lose your job, you might be able to get a deferment or forbearance—if the lender offers these options. Call your lender to find out about reducing or delaying payments on a private student loan.

Other Debts

If you can’t pay your other bills, such as credit card bills, call the creditor. Ask if you can get an interest rate reduction (which will lower your payments) or smaller monthly minimum payments. Most creditors are willing to work with you if you get in touch with them before you miss your first payment.

Questions for Your Attorney

  • How can I get out my rental lease if I lost my job?
  • How soon will my lender foreclose after I stop making mortgage payments?
  • Am I eligible for unemployment benefits?
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