The COVID-19 pandemic triggered months of financial adversity, forcing businesses throughout the United States to shut down and lay off countless workers. Millions of people are now straining to pay their bills, and some are only managing to stay in their homes because of federal eviction and foreclosure moratoriums.
If you are a homeowner, you may have heard of (or used) a special forbearance option under the CARES Act. This option gives many homeowners the right to request and receive 180 days of forbearance.
Under forbearance, you are not required to make payments toward your loan. However, forbearance is not the same as forgiveness, and different lenders will handle these missed payments in different ways. If you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA loan, your lender will not require you to pay the amount that was suspended in a lump sum. Instead, they may tack the missed payments onto the end of your loan, or they may increase the size of your monthly payments until the suspended amount is repaid. Other lenders may do the same but are not legally obligated to add the missed payments to the end of the loan. You will want to work with your lender to ensure that you understand how your missed payments will be paid back.
So, what if your CARES Act forbearance period ends and you still cannot make payments? You have the option of extending the forbearance period for another 180 days. After this, you will need to find another solution.
If you are proactive, your mortgage lender may work with you to modify your loan. You may, for example, be able to lower the monthly payments and extend the terms of the loan. You might also be able to lower the interest rate or even waive certain fees or penalties.
Lenders often make modifications difficult, with many rounds of information needed. If you choose this route, be willing to get documents to the lender quickly and understand that there will be some headache- but it does serve as a solution when it does work.
Chapter 13 Bankruptcy
If your forbearance period has come to an end, and mortgage modification is either not an option or not enough to help you, you may consider filing bankruptcy. Bankruptcy triggers a court order called the automatic stay, which prohibits creditors, lenders, and debt collectors from collecting your debt in any way. This means foreclosure cannot happen for the duration of your case.
Chapter 13 bankruptcy is particularly useful for struggling homeowners. Over the course of 3-5 years, you will make monthly payments, and the court will discharge any remaining debt at the end of that plan. Your monthly payment will depend on how much you make as well as what amounts are required to be paid, ie taxes or mortgage arrears, etc.
You can include the amount you are behind on your mortgage in your repayment plan and catch up on delinquencies by the end of the bankruptcy. While the court will not discharge your mortgage debt, you will then no longer face the threat of foreclosure and at the end of the case your mortgage will be current Be sure you’re ready to begin repaying the normal mortgage payment as well.
Whether you choose to file bankruptcy or utilize another form of relief, call today to find a solution instead of waiting until you have run out of time. The nationwide foreclosure moratorium was recently extended to the end of January, which means you will have several more weeks to find another defense against foreclosure.
Call Today to Get Started on Your Plan
At Pacific Cascade Bankruptcy, our attorney has handled hundreds of cases in his years of practice, and he looks forward to putting this experience to work for your financial future. He will provide a comprehensive assessment of your situation before developing a customized legal and financial strategy. Whether our firm assists you with bankruptcy or another debt-relief solution, you can trust us to stand by your side from start to finish.