Legal benefits help workers facing financial battles

As Americans emerge from the pandemic’s shadow cast over the past year, you can almost hear a collective sigh of relief across the country. There is a light at the end of the tunnel – albeit a ways off.

The pandemic plunged the U.S. economy into a deep recession, leaving many employees in its financial wake. Maybe it’s a spouse who lost their job for several months (or forever), medical bills piling up, rent that is long overdue, or credit cards that were maxed out just to keep the lights on. Many of today’s workers face a tough financial battle, at least in the immediate future. Consider this:

• Mortgage delinquency rates jumped almost four percentage points to more than 8 percent during the second quarter of 2020, as the economic fallout from the coronavirus really began taking hold.
• While 43 states passed moratoriums on evictions last year, between 2.4 million and 5 million American households were at risk of eviction in January alone, and millions more will be vulnerable in the months after, according to estimates from the investment bank and financial-advisory firm Stout Risius Ross.
• Even before the pandemic, many employees were already experiencing financial insecurity and were not prepared for short-term cash needs. A 2019 report by the Federal Reserve showed that 37% of adults could not cover a $400 expense with cash or a cash equivalent, while another 12% of adults said they would be unable to pay the expense by any means.
• While there’s been a surprising, yet welcome 28% year-over-year drop in Chapter 7 consumer bankruptcies, a September 2020 “Bankruptcy and the COVID-19 Crisis” report suggests it may be a double-edged sword: attorney fees, which cost roughly $2,000 for a Chapter 7 filing, is a price tag that potentially shuts out consumers and small businesses when they need debt relief the most.

What these statistics suggest is that financial hardships employees face often have the potential to grow into unexpected and expensive legal issues. Like overdue credit cards that ramp up into debt collection, unpaid rent devolving into an eviction notice or canceled event plans that lead to a vendor dispute.

Chances are your clients have a percentage of their workforce who are dealing with these financial situations right now, but lack the resources – and frankly, the necessary funds – to resolve them when things escalate into a legal issue. The bottom line here? Employees are searching for a lifeline, someone to talk to and a plan to get back on track – and employers are in a position to help them by offering benefits that answer their call for help.

Mounting financial stressors

To learn more about the pandemic’s financial effect, I touched base with Cynthia Campbell, Chief Experience Officer at BALANCE, an organization that provides comprehensive financial counseling and education services

Campbell says, “People are scattered and overwhelmed. They are trying to work from home (if they still have a job) and while working, they are playing teacher to their children. Stress is at an all-time high – and we are seeing financial stresses adding to that due to the impact of the pandemic on finances.”

She adds, “As the pandemic assistance and protections that were in place start to fade, we will see rising delinquencies. Many Americans have used their credit limit as their safety net. The limits are reaching their maximum and payments are becoming harder because of reduced household incomes.”

Campbell stresses that employees need to take a more proactive versus reactive approach to ensure they’re ready for the next disaster, whether it’s a pandemic, hurricane or otherwise. To help people take those important first steps to get back on track after a financial setback, she suggests the following:

• Assess your situation to identify your most pressing financial concerns.
• Take a financial inventory with a complete review of income, assets, expenses and debts.
• Prioritize needs and goals, with immediate needs at the top of the list.
• Create an action plan to be accountable, track progress and work toward larger goals.

She adds, “For example, if the employee is facing legal challenges and needs to budget for upcoming legal issues, we can help them with building a budget to work toward correcting issues like DUIs, child support issues, liens, judgments, etc. The reality is there is a growing connection between financial challenges and legal issues that can accompany them.”

Getting the help you need

Pauldeep Bains, an attorney whose California practices help clients filing for both Chapter 7 and Chapter 13 bankruptcy relief, agrees, adding, “Overall, I see potential clients who are a lot more confused as to what steps to take now than ever before. One of the biggest things with the pandemic is that we don’t know when it will end or what life will be like once it does end. So they are left making guesses as to what to expect moving forward.”

As Bains explains, “One of the hardest parts about my practice is that we are attempting to help people who are facing extreme financial difficulties. Their bills are piling up and they are unable to make a plan as to what steps to take at the current time. We can provide potential clients a huge relief, stepping in to advocate on their behalf and guide them to a better future.”

These impending, stressful and complex scenarios loom larger than ever, given the fact that, according to research ARAG has conducted, 3 out of 4 Americans will experience a legal issue this year, but 76% of them don’t have a plan for handling a legal expense.

Related: A fresh start for benefits in 2021

And their employer may not have a clear-cut solution either, according to Krystie Dascoli, Sr. Director, Voluntary Benefits at Pacific Resources Benefits. Dascoli, who focuses on strategy and support for worksite products, delivery and technology, comments, “Employees’ mental health has been the foremost concern in dealing with financial stressors and the unknown. They’re looking to their employers for guidance and support. They want their employers to provide them with solutions, but employers are having a hard time putting something in place that fits their entire workforce and in one technology platform that houses all financial wellness offerings, versus multiple engagement points.”

Dascoli elaborates, “As a result, I think employees are confused and these valuable benefits are getting lost. Benefits like a legal plan, which oftentimes no one knows they have financial resources like one-on-one financial wellness coaching and support for those going through bankruptcy.”

For employees dealing with serious debt or financial issues, a legal insurance plan could be a valuable asset, providing affordable access to legal counsel that helps them understand the options as well as the short- and long-term implications of their decisions. As attorney Candace Y. Brooks with Brooks & Carpenter in Sacramento puts it, “Before doing anything, at least have a consultation with an experienced bankruptcy attorney. That conversation may save you from making some expensive mistakes.”

A legal insurance plan provides the opportunity to have that critical, initial conversation. And considering that the average hourly rate for an attorney in the U.S. is $368 per hour, a legal insurance plan can save members thousands in legal fees on covered matters – debt-related or otherwise. Given the reported lack of funds to cover the unexpected, this can be a game-changer for many families. In addition, members can take advantage of a wide range of tools and online resources, like template documents, an attorney finder and various guides.

As Bains points out, “For the potential clients who have legal insurance coverage, the stress of having to come up with up-front money to hire us is taken out of the equation. In comes cases, the plan will cover the attorney fees for members on several financially-related legal matters, like bankruptcy or foreclosure. That leads me to believe that having legal insurance in today’s climate is more important and beneficial now than I have ever seen in the past.”

Dennis Healy is a member of the ARAG® executive team. Dennis is a passionate advocate for legal insurance because he has seen firsthand how it helps people receive the protection and legal help they need. He has nearly 30 years of insurance industry experience, with a primary focus on the sale of group voluntary benefit products to employer groups of all sizes through brokers and consultants.