The coronavirus pandemic has changed the way we go about our daily life. And, for many, it has created a terrifying side effect—the inability to pay for basic necessities (like your mortgage, if you are a homeowner). In response, a lot of mortgage lenders are offering the chance for forbearance in payments. But what exactly does this mean for homeowners? Are there any downsides to accepting this offer? How does this affect those in an active bankruptcy? In this blog we will explore the forbearance option for homeowners and the pros and cons of this agreement.
Mortgage payment forbearance is essentially a break from your monthly mortgage payment. The CARES Act allows for federally backed loans (those under FHA, VA, USDA, Fannie Mae and Freddie Mac) to offer this relief from payments. Typically, you can request up to 6 months, and, after that, you can request an extension for another 6 months. Mortgages that are not federally backed may still be eligible, but it is up to your individual servicer on the terms and the length of forbearance. Either way, you will have to speak with your loan provider if you are interested in this option.
Does Forbearance Forgive Debt?
Unfortunately, the amount that accrues during forbearance does not disappear. However, there are options to repay this amount.
Talk to your mortgage company to see if they can arrange any of the following repayment plans:
- A lump sum at the end of the forbearance period (like a balloon payment)
- A lump sum at the sale or refinance of your home
- Payments spread out over a series of months after the break
- Extension of the length of the loan (tacking the payments on the end)
These options are all very different, and some are more helpful than others. But it is important to talk with your lender when requesting forbearance so you can understand what type of repayment options they offer. One other thing to note is that, although your servicer cannot charge any additional fees or interest during this break on federally backed loans, your regular interest will still accrue.
Forbearance During Bankruptcy
In most Chapter 7s and Chapter 13s, forbearance does not really affect the case because you are still considered current on payments. However, that could cause a problem if your break ends during the bankruptcy and you cannot fulfill the repayment agreement. This is especially true in a Chapter 13 case. This becomes even more difficult if you are paying your mortgage payment as part of your Chapter 13 plan. It is best to speak with your attorney if you are worried about being able to make your mortgage payments or catching up on forbearance payments.
For more information about federally backed loans and the CARES Act, visit the following:
Personalized Counsel and Representation
If you are considering bankruptcy as a way to make your life more affordable during these hard times, please do not hesitate to get in touch with Lam Law Firm. Our founding attorney is here to listen to your needs and help you financially survive this pandemic. No matter how complex or challenging your situation may be, we have the skills and experience needed to assist.