Coronavirus Mortgage Deferrals Are Ending Soon. Are You Ready?
As the economy improves and the virus becomes less dangerous, most coronavirus mortgage deferrals are set to expire on June 30, 2021. This grace period ends as millions of homeowners are at least three months behind on payments. Their banks might offer some payment options, but they aren’t very good options.
For example, a few borrowers might be eligible for another forbearance. But most banks are unwilling to extend grace periods further. Additionally, another forbearance is only a Band-Aid. After a few more months go by, the bank will demand that the borrower catch up on payments. In most cases, the bank won’t be very patient with a homeowner who is six month behind or more. And, most families cannot afford to bring these loans current.
Many more options, and better options, are available in Chapter 13 bankruptcy. This federal debt relief program offers short and long-term assistance to distressed borrowers. Furthermore, pretty much everyone qualifies for bankruptcy.
Once debtors file their voluntary petitions, bankruptcy’s Automatic Stay instantly stops creditor adverse actions, such as:
- Wage garnishment,
- Creditor lawsuits,
- Eviction, and
- Creditor harassment.
In Chapter 13, the Automatic Stay lasts up to five years. During these sixty months, homeowners gradually catch up on past-due mortgage payments and other delinquent secured debts. This interest-free, income-based repayment plan is much better than any forbearance or other relief a bank might offer.
Banks usually only give forbearances and other breaks to people with excellent credit. If you have missed several mortgage payments, the bank has probably reported these payments to the credit bureaus, even if the bank hasn’t tried to collect the money. So, your current credit score could be hundreds of points lower than it was before the pandemic hit.
In contrast, as mentioned earlier, pretty much everyone qualifies for Chapter 13 bankruptcy. These debtors must owe less than $1.4 million in secured obligations and $400,000 in credit cards and other unsecured obligations. Additionally, the debtor must have enough disposable income to fund a monthly debt consolidation payment.
A forbearance doesn’t change your installment payment amount. But bankruptcy might. Bankruptcy legally invalidates current debt agreements, like mortgage loans. These pacts must be completely renegotiated. A skilled lawyer can leverage historically-low interest rates and lower your monthly payment, in many cases.
Moreover, Chapter 13 discharges most unsecured debts. Many families take the money they save on credit card and other such payments and use it to pay down their mortgage loans. That move could save them thousands of dollars, if they are able to pay off their loans even a few months early.
Advanced options are available, as well, such as lien stripping. Assume Leroy used 80/20 financing to buy his $500,000 home. He has a $400,000 senior loan and a $100,000 junior loan. His home’s value has dropped to $450,000. A judge could reclassify half the junior loan as an unsecured debt, since his home’s value isn’t large enough to fully secure both obligations. So, the bank might essentially have to tear up half of that $100,000 mortgage.
Connect with Hard-Hitting Cook County Lawyers
Distressed homeowners have multiple legal options in bankruptcy. For a free consultation with an experienced Chicago Chapter 13 bankruptcy lawyer, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.