For many people, the Covid-19 pandemic created an unprecedented financial sinking ship. But there are ways to get back on dry land.
The government has thrown out lifelines specifically aimed at keeping people in their homes. The two most used by consumers in Covid created financial deep water are mortgage forbearance, and a moratorium on foreclosure actions. Both are effective, will keep a roof over your head, and will probably help you sleep better at night. But neither one is an actual solution. Think life preserver tethered to an anchor – it will keep you afloat but it won’t help you get any closer to shore. If your financial woes are truly short lived, forbearance and moratoriums may be all you need. But if you want a long term solution, hang on to the life preserver, but recognize that you have to find a way to get on a life boat and start rowing. If you are unsure how to proceed, it is best to consult with a qualified bankruptcy attorney.
First some information about the lifelines:
Forbearance is skipping monthly mortgage payments (or making reduced payments) for a set period of time. It sounds like the coast guard announcing that help is on the way, right? But those skipped payments don’t just go away – they have to be repaid. And forbearance means different things to different lenders. If your loan is federally backed (owned by FHA, VA, USDA, FHLMC, FNMA), the lender cannot require you to pay back the skipped payments all at once at the end of the forbearance period, and you can’t be charged any additional fees or interest (you can get additional information from the CFPB guidelines on forbearance, and the FNMA forbearance information). But that’s not necessarily true for a non-federally backed mortgage. Those lenders are not bound by the same guidelines. And regardless of what type of mortgage you have, if the skipped payments are put at the end of the mortgage term, they will likely have to be paid in a lump sum at that time. The bottom line: know your repayment options before you agree to the forbearance. And think carefully about whether forbearance is the best solution for you – or if it’s really a solution at all since you may still have to make an impossible lump sum payment in the future.
A foreclosure moratorium means that the foreclosure process is put on hold. The details of the moratorium can vary between federal, state, and local rules; and the rules vary between different types of properties (occupied properties are treated differently than vacant or abandoned properties). Right now the federal moratorium is scheduled to end on March 31, 2021, and it will likely be extended for an additional three to six months. But any foreclosure moratorium is, above all, temporary. And when it ends, you’ll still owe your delinquent mortgage payments. Even more alarming, your house could be scheduled for Sheriff’s sale within just a few weeks or months. The bottom line: a moratorium is not a fix – it’s a delay. But it’s still helpful, and if you use the time wisely, you can have both oars in the water when that delay ends.
Keep rowing. You’re in your lifeboat and you’ve got your life preserver – terrific! But they both just leave you bobbing on the waves – temporarily afloat, but unprotected and unable to propel yourself forward. You’ve got some sharks circling: you’re going to have to start making mortgage payments again, and the moratorium could end any day. You may also be struggling to make credit card, utility, or car payments, leaving you vulnerable to lawsuits, wage garnishments, bank account levies, or vehicle repossession. Don’t sit idly assuming that the tide will bring you to the beach, there are ways to take control of your situation while you still have the life preserver, the boat, and relatively calm seas.
Probably the single best way to take control of overwhelming debt is by filing a bankruptcy. Bankruptcy is not just a temporary fix – it will stop foreclosure, and allow you to cure mortgage arrears, catch up on car payments, and eliminate some or all of your credit card and other unsecured debt. Bankruptcy can even reduce or even eliminate debt owed to the IRS. Forbearance and moratoriums may be the life boat you need today, but bankruptcy provides the oars you need to get you to the shore. Contact an attorney to discuss how bankruptcy can help you get your feet back on financial solid ground.