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When COVID-19 shook the country and stay-at-home orders were issued, many mortgage companies offered six-month forbearances.
It was a relief to homeowners, but now that these forbearance terms are coming to an end, many homeowners are getting sticker shock from the language in the fine print of those forbearance agreements.
At Conner & Robert, PLLC, we can help you use Chapter 13 to deal with your forbearance case. To schedule a consultation with our team, contact us online or via phone at (423) 299-4489.
Understanding Mortgage Forbearance & COVID-19
Most homeowners thought that the forbearance meant that they would have a payment holiday for six months and that the deferred payments would be put to the end of the loan.
As a certain sports announcer says: “Not so fast.”
Letters are starting to arrive at homes all across America, telling homeowners that the bill has come due.
If you did not make payments during the forbearance period, they ask you to pay the full six months of payments, now, in a lump sum.
“That’s crazy,” you would understandably be thinking. “If I needed a six-month forbearance, how could I possibly have six months of payments in a lump sum?!”
You have options, but they depend on what type of mortgage you have and whether it is government-backed or not.
Typically, the options you are given are:
- To make a lump sum payment of all six payments;
- Try to make arrangements to pay it back over the next 3, 6, or 12 months – but that is on top of making your regular mortgage payment also;
- Request for another six-month forbearance (which will buy you some time but put you in worse shape at the end because you will then owe 12 payments at once);
- Request a loan modification. Beware of the fine print here too. Often, loan modifications will increase your payment, your interest, or the length of your mortgage. Often we see loan modifications refinance a mortgage into a forty-year loan!
There is another option that the mortgage companies do not mention – your right under federal law is a Chapter 13 repayment.
What Repayment Looks Like with Chapter 13
With a Chapter 13 repayment, you will get up to 5 years to catch up on the missed payments. Additionally, you could reduce your credit payment and reduce or eliminate unsecured bills like credit cards.
Let’s use “Jim” as an example. Jim had a $1000.00 per month mortgage payment and took a six-month forbearance.
Jim owes $15,000 left on his car, and his car payment is $520 per month.
He has $10,000.00 in credit card bills, and the minimum payments are nearly $400 per month.
So, Jim is spending $1920.00 per month and still treading water on his credit card bills and not reducing the balances.
The forbearance ends, and suddenly the mortgage company is demanding that he pay $6,000.00 immediately on top of his regular payment.
If Jim chose Chapter 13 to get caught back up, he would pay his regular $1000.00 mortgage payment, plus just $50 extra per month over a five-year period to catch up on the payments he missed.
Jim could also refinance his car over five years to reduce his car payment to less than $300 per month. Finally, depending on his income and value of his assets, he could be eligible to reduce or eliminate credit cards, medical bills, and other bills.
With Chapter 13, Jim could pay about $1495.00 per month for his house, car, other outstanding bills, and the cost of the case!
At the end of the case, his credit cards are wiped out, his car is paid off, and his mortgage is current – all while saving $425.00 per month!
Every case is different, but if you want to see how much a Chapter 13 case can save you, contact us online or via phone at (423) 299-4489 to consult our team about your case.