Hello I’m Joseph Vacek and I’m the Bankruptcy attorney here at Bailey & Galyen.
Today we’re going to talk about loan forbearance and how it relates to the CARES Act. Forbearance doesn’t mean your payments are forgiven or erased you’re still required to repay any missed or reduced payments in the future. How you are going to do it is going to depend on your particular mortgage servicer.
The CARES Act doesn’t directly address how repayment of a loan forbearance is going to happen. That’s going to depend on your mortgage servicer. Generally there are 3 scenarios.
Your first scenario is what’s called a balloon. What a balloon is, is when basically all the payments that were missed or skipped during the forbearance period become due and payable in full at the end of the forbearance period.
The second is called a payment reduction. This is where over 12 months your mortgage company may reduce your mortgage for you. Let’s use an example here, let’s say your mortgage is $1,200/month and during the forbearance period your mortgage company allows you to pay only $600/month. Well at the end of the 12 months you’re then going to have to repay your current mortgage payment of $1,200 plus the $600 that was reduced before for a total of $1,800/month for 12 months.
The third is called a payment pause. What this is, is basically your mortgage company is going to allow you to pause making payments during a specific period of time, let’s use 12 months. Well at the end of this 12 months what’s going to happen is you will resume your regular mortgage payment and those payments that you missed or were “paused” will be put on the back of your loan. Which means your loan term will be extended.
As you can tell certain forbearance plans are better than others. Which one that you are a part of is going to depend on your particular mortgage servicer.
One question that comes up a lot about the CARES Act is, is there going to be interest on these forbearance payments? No, the CARES Act provides that there will be no additional fees, penalties or interest except for what is already scheduled to be due during the period of forbearance.
No one wants to file for bankruptcy but if you are one of the millions of Americans that has been laid off or have had your income reduced because of the Coronavirus outbreak it might make sense for you especially if you are struggling with debt. One of the most significant benefits of bankruptcy is the ability to discharge unsecured debt. That is credit cards, medical bills and some personal loans. The same types of debts that may get out of hand during the Coronavirus crisis.
If you are currently struggling with debt do not hesitate to contact us and set up a free consultation to discuss your situation today.