The COVID-19 pandemic has had a massive impact on economies across the world. But closer to home, people across the country are struggling to keep up with their mortgage payments – job and income losses at an unprecedented scale are the cause.
With so many drowning in unpaid debt, the government has thrown out lifelines that are focused on helping people not lose their homes. Of these lifelines, the two most popular are mortgage forbearance and moratoriums. And many people’s last resort is filing for bankruptcy. So, let’s take a look at each of these lifelines and see which one is best for you.
What is Mortgage Forbearance?
When you apply for mortgage forbearance, you are basically asking your lender to allow you to skip on or make a lower payment on your mortgage for a limited amount of time. This will give you the breather you need to get back on your feet.
However, it is best to remember that you will need to eventually make those skipped (or lowered) payments. How and when you need to make those payments will depend on the deal you make with your lender, as well as the kind of lender you have – a Federally-backed or sponsored one, or a private lender.
The government has laid out strict guidelines for lenders they are backing. Here are two key things that you should keep in mind:
- They cannot make you pay back the entire sum in one go once the forbearance period is over.
- They cannot charge you added interest or even additional fees for the skipped or the lowered payments.
For more information, you can check the Mortgage Forbearance page of the Consumer Financial Protection Bureau (CFPB). You can also check the Fannie Mae (FNMA) Forbearance page.
If, however, you are dealing with a private lender, then you may not get any of these benefits. Therefore, if you are looking at forbearance as an option, you will need to find out exactly what getting this benefit from your lender means – and what the repayment terms and options are.
What is a Foreclosure Moratorium?
If you have delinquent payments and are facing foreclosure on your mortgage, then a foreclosure moratorium may be able to buy you a little bit of time. If you apply for a moratorium, then the processing on your foreclosure will be put on hold temporarily.
At the moment the government has offered a moratorium up to March 31, 2021 for those of you who are contracted with Federally backed or sponsored lenders. And this date could be extended by another 3 or even 6 months.
While this is not the best solution, it does give you a little time to come up with other alternatives so that you don’t lose your home.
The Last Resort – Filing for Bankruptcy
What forbearance and moratoriums have done is given homeowners and buyers some breathing space to manage their finances. The problem is, they are not long-term solutions. They are temporary benefits that will help you in the short term.
And if you are among the many who have lost their income or have taken a pay cut, then it won’t just be a mortgage that you’ll be struggling with. There could also be utility bills, car payments, credit card debt, groceries, daily expenses, school fees, medical bills and so many other financial commitments that you could be dealing with at the same time.
That is why, if you are swamped by your debts, then declaring bankruptcy may be the best option for you. This is a long-term solution that can help you come out of this COVID-19 induced financial disaster.
By filing for bankruptcy, you will be able to stop your home foreclosure, take care of all delinquent payments, and remove some or even all of your credit card debt. Filing for bankruptcy may even be able to help you with your IRS debts.
Conclusion If your financial problems are not overwhelming and you need just a little bit of space to clear your debts, then forbearance and even moratoriums are a good option. However, if you’re overburdened with debt, then it would be best to file for bankruptcy, especially now that the government has modified the Bankruptcy Code as part of the Cares Act to help those severely impacted by the pandemic.