Moratorium on foreclosure under CARES Act as a result of COVID-19 and Bankruptcy protection
On March 27, 2020, the CARES act implemented a 90-day moratorium on foreclosures for all “federally backed mortgage loans,” meaning no foreclosure process could be implemented on all mortgage loans insured or guaranteed by a federal agency or owned or securitized by a government sponsored enterprise (which accounts for roughly 70% of loans). This provision was extended several times to prevent foreclosures under such loans until June 30, 2021. The moratorium provision is now expired. The CARES Act provision required lenders to offer borrowers forbearance plans under certain conditions. The forbearance of mortgage payments means that some borrowers can be 12 months or more behind in making monthly mortgage payments. At the completion of the forbearance period, borrowers would be evaluated for various repayment options, which may include deferral of missed payments until the end of the loan term, or repayment or “catch-up plans”. However, it is important to note, that first, borrowers will still have to work with the mortgage servicer to bring the loan current through a number methods, and second some borrowers may have been behind in making payments prior to the commencement of the moratorium or forbearance period, and the lender may or may not evaluate that mortgage arrearage in the context of your evaluation plan to cure the forbearance. We encourage you to work with your lender or servicer to address your mortgage arrearage. However, if those efforts fail to address the delinquency, bankruptcy options may be available to you to help you stay in your home. In our experience, mortgage servicers and lenders have had great difficulty in the past and have a poor track record evaluating borrowers for repayment options even prior to the pandemic. Now, with the unprecedented number of borrowers currently behind in mortgage payments, it means that the mortgage companies and servicers will likely be under an even greater strain.
Can a bankruptcy case help?
If all efforts to cure any mortgage delinquency have failed with the lender, you should contact a bankruptcy attorney to be evaluated for a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is a debt repayment plan, and can be used to bring mortgage arrears current, vehicle payments current, to make payments on tax debts, and to address unsecured debts, and many other types of debts. A Chapter 13 case generally lasts from 3 to 5 years. The difficulties everyone is experiencing during Covid-19 can be compounded when there are other issues such as repossession or garnishment or court actions or collections on other debts because of job loss or other issues unrelated to Covid.
When you file for bankruptcy, an automatic stay goes into effect. This freezes all collection activities against you. A creditor cannot take money or property from you, and any lawsuits against you must pause, during the stay.
There is also Chapter 7 bankruptcy which, if you qualify, can provide an automatic stay while you are seeking a discharge of all of your dischargeable debts. Chapter 7 cases do not last as long as a Chapter 13 case and Chapter 7 cases do not include repayment plans, so, generally speaking, they may not be optimal for borrowers who own real estate or wish to catch-up on making payments. Additionally, a Chapter 7 case may not might be not advisable if you have equity in your home. Chapter 7 cases are generally available to those that do not have the means to pay back their debt, but because the facts of everyone’s situation is different, so too is the relief that might be available and best for each person.
If you are experiencing issues, it is important to discuss the facts of your situation with a qualified and experienced bankruptcy attorney, and early on before the situation worsens.
Unforeseen financial problems can weigh you down, often to the point of bankruptcy. Money pressures may have you feeling like there's no way out from underneath this weight, and no chance for recovery. You don't have to continue on a downward spiral. With the right attorney giving your specific problems the undivided attention and focus they require, you can overcome the financial difficulties you face.
Bankruptcy is one of our concentrations, and we are able to help you file several types of matters, including Chapter 7 and Chapter 13 bankruptcy. Please click below for questions and answers for each of these bankruptcy chapters: