Mortgage payment forbearance provided a lifeline for millions of American homeowners during the most difficult months of the pandemic.
What Happens When The Forbearance Period Ends?
Under the CARES Act, homeowners with conventional, FHA, VA or USDA loans could request an initial loan forbearance for up to six months. They could also request a six-month extension, for up to one year of total forbearance. Here’s the issue: what happens when the forbearance period ends? Depending on the lender, a homeowner may need to pay the entire forborne balance when the forbearance period ends. Other lenders will allow the forborne balance to go to the end of the loan.
How Could Chapter 13 Help With My Forbearance?
Another option for the homeowner would be to consider filing a chapter 13 bankruptcy. This allows a homeowner up to five years to bring current missed payments as well as restructure other debt he or she may owe. So instead of having to make one huge payment, a homeowner could break up the payments over 60 months.
Here is an example outlining how this could work: If a homeowner accepted a 12-month forbearance on monthly payments of $2,000, then a chapter 13 plan can provide for the $24,000 in arrears to be paid over a 60-month period. That works out to an extra $400 per month.
Additionally, if the homeowner has other obligations (past-due homeowners association dues, vehicle loans, credit card debt, tax debt, medical bills, student loans), they can be provided for and possibly discharged under chapter 13. The variable factors include the type of debt owed and the assets, debts, income and expenses of the debtor.
What If I Decide To Sell My Home?
If a homeowner decides to sell the residence during the pendency of the chapter 13 case, the plan can be modified to account for that change, or alternatively, the case can be converted to chapter 7 or dismissed.
If a homeowner seeks to sell the residence but needs time, a chapter 13 plan can include a liquidating provision which generally limits the monthly plan payment commitment in exchange for selling the property.
Remember, Guenther Miller Law Group offers free consultations to discuss your available options. Give us a call at 831-783-3440.