Updated information on how to get a mortgage forbearance in Chapter 13 bankruptcy if you are suffering financial hardship due to COVID-19
By now you have heard about mortgage lenders offering a forbearance if you are having a financial hardship due to COVID-19 related loss or reduction of income. But, what can you do if you need a mortgage forbearance in chapter 13 bankruptcy?
Maybe you already tried calling your mortgage lender and haven’t had any luck. At first, there was a severe lack of information on whether or not a person in active bankruptcy could take advantage of this relief. This week, services and lenders clarified their position on getting a forbearance even if you are in active chapter 13 bankruptcy.
This relief is only for mortgage loans that are backed by the Federal Government Fannie Mae or Freddie Mac. This covers about 90% of home loans in existence today. However, there are some loans that are not backed by the Federal Government.
What If My Loan is Not Backed By Fannie or Freddie?
Many lenders are honoring this relief program even if your loan is not backed by Fannie or Freddie so try anyway.
How to Find Out if Your Loan is Backed by the Federal Government.
What Is Forbearance?
The first question most people have is: what is a forbearance. A forbearance is a temporary suspension of the requirement to make monthly mortgage payments. Under the CARES Act passed last week, a 180-day forbearance is available if you are having a financial hardship due to COVID-19 related loss of income. And, that 180-day forbearance can be extended one time for another 180 days if your financial hardship continues so long as you apply for the extension prior to the end of the first 180 days.
Mortgage loan servicers have set up applications on their websites to apply for the forbearance. The process is simple and streamlined without the need for documentation.
How to apply for the forbearance.
- Don’t call your servicer. Call volumes are high and hold times are unbearably long.
- Go to the website of your loan servicer. Servicers have set up applications on their websites streamlining the process.
- In your application, state that you are having a financial hardship due to COVID-19 related loss of or reduction of income.
- No documentation is required to apply for a forbearance (but documentation is required to determine the re-payment agreement).
- Your servicer may ask you for an authorization from your bankruptcy attorney to allow them to speak directly with you which is normal but most are waiving that requirement temporarily. If you need an authorization, contact me and we will send you one.
How Do I Pay Back The Missed Payments?
During the 180-day period, lenders are required to reach an agreement with you on how to pay back the suspended mortgage payments.
How Do I Reach An Agreement To Repay the Suspended Payments?
Servicers are required to enter into a re-payment agreement with you prior to the end of the forbearance period (which may be extended for another 180 days if your financial hardship persists). Your servicer will contact you with a re-payment agreement.
Typical re-payment agreements might look something like:
- Defer the missed payments to the end of the loan in either a balloon payment or by adding months to the loan term.
- Enter into a loan modification agreement.
- Payback the missed payments over some number of months by adding additional monies to your regular payment.
- Add the suspended amount to a chapter 13 plan by formatting amending the chapter 13 plan.
Do I have to do anything formal with the Bankruptcy Court?
No, your servicer will file a notice with the Bankruptcy Court notifying the court of the suspended payments. When the re-payment agreement is executed, your servicer will again notify the Bankruptcy Court of the re-payment terms.
What Do I Do If I Can’t Make My Chapter 13 Plan Payments to the Bankruptcy Trustee?
Unfortunately, as of right now, there is no simple answer to this question. Typically, when chapter 13 plan payments are missed, a trustee files a motion to dismiss you entire bankruptcy case. This requires a formal written response by your attorney and a court appearance. Usually, missed chapter 13 plan payments are resolved by making a lump sum payment to catch up all or a portion of the missed payments and sometimes a the remaining portion of the missed payments may be added to the remainder of the chapter 13 plan at the trustee’s discretion.
After talking to trustees this past week, the trustees in New Jersey are informally not taking action to dismiss a case if chapter plan payments are missed. However, at some point in the future, any payments that are missed will have to be made up.
If you are in need of a Mortgage Forbearance in Chapter 13 Bankruptcy, follow these steps and good luck.
For More Information on any COVID-19 related relief, see our special coronavirus resource page
For more information on relief programs and other important updates about the coronavirus COVOID-19, go to our Coronavirus Resource page.