How the Pandemic Has Impacted Mortgages
The COVID-19 pandemic has wrought wide-reaching economic implications throughout the country, including substantial layoffs and furloughs in many business sectors. If you have recently lost employment or income as a result of the pandemic, you may have been worried about making your mortgage payments.
Thankfully, the CARES Act, passed on March 27, 2020, introduced emergency mortgage forbearance opportunities, giving many homeowners much-needed relief. Those with loans backed by Fannie Mae, Freddie Mac, the FHA, VA or the USDA, which together encompass almost 75% of the mortgage market, were eligible to apply for forbearance. If approved, you had the opportunity to request up to 180 days of forbearance, and an option to request up to another 180 days if you were still unable to pay at the end of the first period. Many private banks not covered by the CARES Act have also elected to offer forbearance and relief programs.
However, forbearance is not equivalent to forgiveness, and the delayed mortgage payments will eventually need to be repaid. Given the extent and further uncertainty of the pandemic’s fallout, it remains possible you will still be experiencing financial difficulties when your mortgage forbearance period ends. If you are still unable to make your resumed mortgage payments, your lender may choose to initiate foreclosure proceedings, meaning you could lose your home.
Bankruptcy is a powerful financial tool that allows an individual to restructure their debt, and Chapter 13 bankruptcy, in particular, helps many stop foreclosures. Below, we provide an overview of how bankruptcy and foreclosure are interrelated.
How Chapter 13 Bankruptcy Can Save Your Home
Chapter 13 bankruptcy calculates your disposable income at the time of filing and sets a court-approved monthly repayment amount for a term of 3-5 years. Any dischargeable debt will be discharged at the end of the repayment period.
Arguably more importantly, though, filing for Chapter 13 bankruptcy initiates an automatic stay, which blocks creditors from attempting any further creditor action. This includes foreclosure in addition to wage garnishments, collection calls, and repossession. In other words, filing for Chapter 13 bankruptcy can in most cases stop a foreclosure and save your home, at least temporarily.
What is even better is the automatic stay still works even if the foreclosure proceeding has already begun. In the state of North Carolina, your mortgage lender is obligated to serve you a Notice of Hearing in advance of a foreclosure hearing. At that hearing, the court will decide whether your mortgage lender can proceed with a foreclosure sale. If the sale is approved, it is typically held within 20 days.
If your hearing has already been conducted or the foreclosure has been held, it is still not too late to act! Once the foreclosure sale has been held, a 10-day redemption period, also called the “upset bid” period, begins. This is a critical window of opportunity and your last chance to stop the foreclosure. If you file for Chapter 13 bankruptcy during this window, the automatic stay will invalidate the sale, and your home will be saved.
From here, so long as you continue to pay your court-ordered repayment amount for the length of your 3-5-year term, your mortgage will be current, and you will no longer have to worry about foreclosure. Because your disposable income, which determines the amount of your monthly repayment, is determined by present circumstances, your loss of employment or income will be taken into account and help you keep up with your payments.
Will Chapter 7 Stop Foreclosure?
Filing for Chapter 7 compels you to “liquidate” non-exempt assets, which can include real estate, so it is often not the right choice when attempting to halt a foreclosure. Filing for Chapter 7 bankruptcy will trigger an automatic stay, which will delay the foreclosure while your case is pending, however, the lender may simply request the bankruptcy court that the foreclosure proceeds. They may also wait for foreclosure until after your bankruptcy case is over.
How Long Will Chapter 7 Delay Foreclosure?
If you choose to file for Chapter 7, your foreclosure may be delayed 3 to 4 months. If the lender gets permission from the bankruptcy judge by filing a "motion to lift the automatic stay" to proceed with the foreclosure, there will be no delay.
Hire a Bankruptcy Attorney Who Will Fight for You
We at Blossom Law PLLC are committed to giving individuals of every financial circumstance the quality legal care they deserve. We understand that the economic uncertainty of the pandemic has made just about everything more challenging, but you still deserve the best possible legal advocacy.
If you have lost employment or income as a result of COVID-19 and are now struggling to manage your mortgage or other debts, we want to help. We can help evaluate the details of your case and determine if bankruptcy is the right choice for you. If you are already facing a foreclosure hearing or sale, do not delay in contacting us, as we may be able to help save your home.
Let us help fight for you and your home. Call (704) 271-9078 or contact us online today to request your consultation.