Share This Post
Facing the Finances of COVID-19 Part 2: What Comes After Relief Ends?
While financial assistance for renters — involving eviction mitigation, specifically — has recently remained a focal point in terms of COVID-19 relief, it may be easy for some to overlook the challenges involved in owning a home as opposed to renting.
Namely, as the federal mortgage forbearance program that reportedly helped nearly 7.2 million American households over the last year comes to its end, one urgent question remains: What comes next?
A CARES Act Recap
As the nation was swept with job losses and illness, 2020 became the year wherein COVID-19 made it increasingly difficult for Americans to make ends meet. Thus, the federal government instituted a $2.2 trillion economic stimulus package, known as the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act for short.
Included in this package was money designated for housing aid. With millions of families struggling to make their monthly mortgage payments, a federal forbearance program enabled homeowners to pause or reduce their housing loans for up to a year.
In most cases, this meant homeowners would still need to repay any missed payments over time, meaning they could later become subject to higher bills and increased financial difficulty once their forbearance expired.
That being said, as the federal forbearance program came to its end in August of 2021, those households are now left to their own devices, even as the pandemic continues to infect large swaths of the populace.
From Federal Forbearance to Potential Foreclosure
At the end of their federal forbearance period, homeowners could choose from the following:
- Repay all of the loan payments over a period of 3 to 12 months
- Repay all of the loan payments in one lump sum
- Opt for a loan deferral
- Apply to lengthen the overall loan term or to modify the loan
Should none of the aforementioned work for a homeowner, they may also sell their property or otherwise face foreclosure.
In an effort to mitigate such a potential wave of foreclosures, the Consumer Financial Protection Bureau (CFPB) announced June 28, 2021, that new rules to “facilitate smooth transition[s]” would go into effect. For example, a loan servicer may file for the foreclosure of a property if they could prove that the borrower:
- Abandoned the property in question
- Is behind their mortgage payments by more than 120 days and has not responded to the loan servicer’s outreach attempts for at least 90 days
- Was behind their mortgage payments by more than 120 days prior to March 1, 2020
- Has no other applicable means of avoiding foreclosure
These new rules took effect on August 31, 2021.
How Chapter 13 Bankruptcy Can Help
If you were previously protected under the CARES Act but now face the possibility of property foreclosure following the expiration of the program, Chapter 13 bankruptcy may provide you with the relief you need.
As Chapter 13 enables the borrower to restructure or reorganize their secured debt, filing for bankruptcy will temporarily prevent the foreclosure process by way of an automatic stay. Additionally, should the filing prove successful, you may then complete your payments to the loan servicer over a period of three to five years, thereby allowing you to keep your home.
In short, when federal relief comes to an end, you are not alone.