2020 was a difficult year for many Californians and Americans. While there have been some important steps taken to help Americans maintain their pre-pandemic lifestyles, so many people are still facing extremely difficult financial decisions. High unemployment rates coupled with continued economic uncertainty and expiration date on relief provided under the CARES Act, has many Americans contemplating foreclosure, and with that, bankruptcy. However, bankruptcy is not a solution for everyone facing foreclosure, and in many cases, it can make an individual’s financial circumstances much worse.
The CARES Act, signed on March 27, 2020, provided millions of Americans with mortgage forbearances and other relief. The CARES Act has had a significant impact on the mortgage industry, including a foreclosure and eviction moratorium on all federally backed mortgage loans. This meant that millions of Americans with federally backed mortgage loans were able to take advantage of up to 360 days of forbearances because they were in financial distress due to the pandemic. This moratorium is, however, scheduled to expire on December 31, 2020. Currently, roughly 18 million Americans are behind on rent or mortgage payments as the coronavirus pandemic continues to ravage the country, causing job losses and other economic stressors. A new US Census Bureau survey found that about one-third of those Americans expect to face eviction or foreclosure in 2021. [i]
If you are facing a foreclosure, you may be thinking about bankruptcy. The two most common types of bankruptcy in America are Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, one can quickly erase debts, but in exchange must give up expensive assets that aren’t exempt. In Chapter 13 bankruptcy, one can keep expensive property like a house or a luxury car so long as monthly payments are made under a 3-5 year repayment plan. However, bankruptcy is often something best avoided.
In fact, Chapter 13 bankruptcy has a 67% failure rate; there are so many unexpected life events that can come up and affect one’s ability to stick to the repayment plan in those five years. The success rate of Chapter 13 bankruptcy falls to 2.3% when it’s filed without a lawyer; this makes them more expensive as lawyers will charge more based on their complexity and length. Additionally, interest on unpaid debt continues to add up during the repayment plan, so if the bankruptcy failed, one is often worse off in terms of debt than before. In the case of failure, one would also not get the benefit of keeping the property.
Filing for bankruptcy does not guarantee you’ll be able to keep your home. While it is true that filing either Chapter 7 or Chapter 13 bankruptcy will result in an automatic stay, preventing the bank from foreclosing on your home, the bank can file what’s known as a motion for relief from stay. If you enter bankruptcy behind on the mortgage, there’s a good chance that your lender will file a motion for relief from stay and will be given the right to continue with the foreclosure.
Foreclosure and bankruptcy can both be intimidating, and even scary prospects. However, before making any big decisions, it’s important to take a comprehensive look at the condition of your finances as well as your state’s deficiency laws. At Sternberg Law Group, we will pursue every option to keep you in your home. If you are facing foreclosure, contact us to find out what all your options are before making such an important financial decision. In addition to home retention options, our attorneys are extremely knowledgeable about strategic foreclosure options. Although our aim is to defend your case and keep you out of bankruptcy, there may be situations where walking away is best. We will work with you to create a personalized plan that fits your specific needs. Contact us now here and let our expertise guide you through these difficult times.