What Should Someone Know About Filing Bankruptcy During The COVID-19 Era?

I won’t get into too many specifics here because things are fluid and changing during this pandemic. There are, however, certain protections right now depending on the type of loans that someone has either through Maryland or through the federal government and depending on what kind of loan program you are in. A lot of foreclosures are currently on hold through the end of March. Other loans are on hold for less time or not on hold at all. That is definitely something that you want to talk to an attorney about to make sure because most people don’t even know what kind of loan they have. Right now, the government keeps extending what they call the moratorium on foreclosures, but you don’t want to just bank on that. If your property is vacant (meaning that there is no one there) or if you have a private lender, then there may not be any protection.

Having said that, just because the foreclosure process is frozen doesn’t mean that your problem is not there. If you’re not making payments, your options may be getting more limited because, like I said before, those payments tend to snowball. Attorney fees and costs get added to your bill along with late fees and other charges, and at some point, there will be too much money owed for you to do anything realistically. That’s why it’s always better to seek an attorney early on in the process.

Most lenders now are offering what’s called forbearance agreements, and they’ve made it pretty simple. You can just go on their website and apply, and if you receive a forbearance agreement, it basically just pauses your payments. You are not charged late fees, and in a lot of cases, your credit isn’t dinged when you make them. When your agreement expires, however, your lender typically wants you to pay everything back. Let’s say, for example, you get a 90-day forbearance plan: that means for 90 days you’re not expected to make a payment, nor are you assessed a late fee or other charges. After the 90 days, you have to pay back the three months you missed, plus month four’s payment. And that’s the problem.

It remains to be seen what lenders are going to do about this. There is some talk that they’ll allow people to do loan modifications and put the amount that’s unpaid at the end of the loan. Some of them are extending the terms of this forbearance plan, but I think a lot of people don’t realize that there will be this big bill at the end. They might think they’re no longer expected to pay, which is why it’s important to talk to someone competent about different options you can explore when that bill comes due, as it will for every person who’s entered a forbearance program during the pandemic. Similar agreements were offered back in 2008 during the last housing crisis, and it resulted in a mess of people applying for assistance with mixed results.

If I was in this spill, I wouldn’t count on simply getting an automatic loan modification or some other assistance. I would definitely talk to someone about options now because it might be a good time to do something right away. In your case, you might be counselled to not take the forbearance arrangement. I’ve counselled clients who have been able to get a loan modification not to take it and to do something else instead. Just because something is an option doesn’t mean it’s the right one for you. Therefore, it really does help to talk to someone about what you can do in these situations.

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