If you receive forbearance on your mortgage payments under the CARES Act, when do you have to catch up on those missed payments?

Last week we presented the new law allowing forbearance—skipping payments—on federally backed mortgages during the pandemic. Basically, if you’ve been financially affected by the pandemic you can request and receive a 6-month forbearance on payments. This can be extended another 6 months if the declared emergency continues at that point.

Being unable to meet your monthly debt obligations can be a serious source of stress. Many people in this situation turn to bankruptcy as a possible solution. For some people who have a steady income, a Chapter 13 repayment plan may be the best option. Often referred to as the “wage earner’s plan,” this type of bankruptcy allows individuals to repay all or a portion of their debts over a period of three or five years. Each month, a single payment is made to the bankruptcy trustee, who then distributes the appropriate amount to each creditor.

Chapter 13 bankruptcies are popular with individuals who have secured debt attached to certain items that they want to keep, like a house or a car. This is because a Chapter 13 bankruptcy allows individuals to distribute any past due payments into the repayment plan so they can get caught up. While the draw of a Chapter 13 bankruptcy is present, most peoples’ first question is, “How much will my payments be?”

Factors Affecting Your Payment

Mortgage delinquencies skyrocketed in April. One big reason: the pandemic CARES Act provided for extraordinary mortgage payment forbearance.

Epic Increase in Mortgage Delinquencies

The number of home mortgages that became delinquent in April was largest one-month increase in U.S. history. 1.6 million mortgages current in March were not paid in April, according to Black Knight, a mortgage data provider.

After declining significantly since 2010, consumer bankruptcies edged up in 2019, increased in March, then oddly sharply declined in April.

In the last two weeks three major retailers filed Chapter 11 bankruptcy: J. Crew, Neiman Marcus, and J.C. Penny. Total business Chapter 11 reorganizations were up 26% in April 2020 compared to the same month last year. (560 compared to 444.)

Nobody wants to file for bankruptcy. Even though you can discharge your debts so that you are no longer legally liable for them, there are a few negative consequences that come from filing for bankruptcy, including a hit to your credit score. However, if you are one of the millions of Americans who are struggling financially, bankruptcy may be the solution. The current coronavirus pandemic has hit the U.S. economy hard, causing unemployment to soar to levels unseen since the Great Depression. The coronavirus has affected many things, including making temporary changes to the bankruptcy code.

The CARES Act

Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the economic crisis emerging from the pandemic. Valued at more than $2 trillion, the CARES Act was monumental for the U.S. as it is the largest stimulus package to become enacted in the history of the country. One of the most popular benefits the Act provides is the economic impact payments that are given to most households and individuals. Single tax filers will receive $1,200, while married couples who file jointly will receive $2,400. Each child that an individual or married couple has that is under 17 will receive an additional $500.