You may be a homeowner struggling with mortgage payments and foreclosure is looming as a possibility. Arranging forbearance with your bank may allow you to pause your mortgage payments or reduce your payments for a time period. But if your debt burden is too high, you might consider filing for Chapter 13 bankruptcy.
How will a bankruptcy judge treat your case if you are in mortgage forbearance? This is an important question because recent changes in federal law have given people with mortgage problems greater options when it comes to bankruptcy.
Changes due to the CARES Act
According to the NCLC, bankruptcy courts have usually denied Chapter 13 filers a discharge of their debt if they have missed mortgage payments. Judges often took the position that ongoing mortgage payments qualified as payments under a bankruptcy repayment plan. So if you wanted a debt discharge, you would have to pay off your mortgage first.
In 2020, Congress passed the CARES Act which added new language to the bankruptcy code. While Congress drafted this section to give debtors bankruptcy relief due to hardships caused by the COVID-19 epidemic, it also included a section permitting bankruptcy courts to discharge debt if the debtor has modified a mortgage loan or has entered forbearance.
The future of forbearance cases
While this addition to the bankruptcy code opens up options for you if you file for Chapter 13 bankruptcy, these changes are still temporary, meaning they may expire if Congress does not renew them. Bankruptcy courts may also interpret these new provisions to varying degrees, so a court might still turn down your request for a Chapter 13 discharge if you are in mortgage forbearance. On the other hand, a judge might interpret the law as permitting a discharge even if you have not completed a repayment plan.
Even with the uncertainty involved in securing a discharge of your debt while in forbearance, these changes in law hold great promise for people who are in a difficult situation regarding their mortgage. It may be worth it to see if you could benefit from these recent developments.
