Dubiln Packard

New Jersey bankruptcy lawyer

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How to Get a Mortgage Forbearance in Chapter 13 Bankruptcy

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.

Go to Fannie Mae’s website or Freddie Mac’s website to look up your loan.

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.

What Next?

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.

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Bankruptcies in New Jersey Expected to Rise Following COVID-19 Unemployment

Ralph, an Uber driver who just filed bankruptcy to get out of debt after demand for rides dropped due to Coronavirus COVID-19

Ralph, an Uber driver warns bankruptcies in New Jersey expected to rise following COVID-19 unemployment

“I was getting my finances in order after divorcing my wife over a year ago. I was just about to start a consolidation program for approximately $30,000 in debt and I was bringing in income driving Uber and Lyft. “

“Then, the coronavirus pandemic hit and my income dropped to zero. Now, bankruptcy made more sense than consolidation.”

Ralph reduced his driving hours to protect himself from the infectious disease. It wasn’t like he was leaving money on the table. “There wasn’t any work anyway,” Ralph told me. 

Ralph filed for bankruptcy on April 1 to eliminate all of his debt and, after talking to friends who also drive for Uber, thinks there will be a lot more people doing the same thing soon.

For some, if you aren’t able to pay your rent for a few months, even though the landlord can’t evict you right now, you are still going to have to pay the missed rent which may add to the financial pressures. Bankruptcy may be a tool that helps here as well.

“It’s just logical. Anybody who was thinking about bankruptcy before but thought they could get out of debt over time through debt consolidation or settlement is more than likely going to consider bankruptcy given the uncertainty of their employment and income.,” Ralph said. 

I agree with Ralph, looking at a new spike in unemployment and remembering how the Great Recession caused a wave of bankruptcy cases from consumers seeking a reset after getting too far behind on debt.

Bankruptcy filings have dropped in recent years, but household debt has climbed. 

Bankruptcies in New Jersey Expected to Rise Following COVID-19 Unemployment

There were more than 770,000 bankruptcies filed last year, according to court statistics. That’s less than half of the nearly 1.6 million cases filed in 2010 during the Great Recession. In fact, bankruptcy filings hit a 10-year low in 2018.

Americans had $14.15 trillion in household debt as of 2019’s fourth quarter, according to Federal Reserve Bank of New York data. For context, the recession-era peak was $12.68 trillion during the third quarter of 2008.

Now, all of the sudden, millions of people are out of work as the coronavirus forces consumers to stay at home to slow the virus’s spread.

Americans filed first-time jobless claims the last few weeks, in staggering numbers.

The sudden choke on cash flow, despite the ability to get a 180 day forbearance on mortgage payments, could still force people into foreclosure.

Business filings could start as soon as April with consumer filings to surge in May and June. 

The increase could take a bit longer because in times of crisis, people don’t normally race off to file bankruptcy. But once reality hits, bankruptcy is going to be good option for many small businesses and individuals.

With all of this uncertainty, I agree with Ralph and believe Bankruptcies in New Jersey expected to rise following COVID-19 unemployment.