It’s counterintuitive for many, but consumer bankruptcy filings in 2021 were at a low level not seen since the 1980s. This is attributable to several factors:
1. Eviction moratoriums, foreclosure moratoriums, direct aid from the federal government and other programs have assisted millions of Americans in a challenging time across America. In Virginia, for instance, the state the created its first Rental Relief Program via $465 million from the U.S Treasury. The program allowed renters to apply for up to 15 months of rent relief and is responsible for assisting over 48,000 households.
2. Low interest rates have kept payments more manageable and have resulted in people being able to keep their homes. Mortgage rates hitting their record low last January 2021 at 2.65% for the average 30-year fixed-rate loan.
3. Mortgage lenders have been more creative with forbearance agreements. A forbearance agreement between a mortgage lender and a delinquent borrower alters the repayment terms. In this agreement, the lender agrees not to foreclose on the mortgage, while the delinquent borrower agrees to a revised mortgage plan that will bring them current on any owed payments to date. A mortgage forbearance agreement will often suspend or reduce the payments for a period of time, allowing the borrower to fulfill the mortgage obligation without having the property foreclosed on by the lender.
4. The court system has also played a role due to the pandemic. With courts just getting back up to speed in some jurisdictions and the amount of time it takes in judicial foreclosure states to complete a sale, there was a negative trend on bankruptcy filings. Further, the time for creditors to obtain judgments and to proceed to execute on assets of the debtor slowed down the process and did not force consumers to consider bankruptcy.
But, consumer bankruptcy is set to rebound in 2022 due to the changing nature of all of these factors:
1. The U.S. Supreme Court struck down the CDC’s eviction moratorium in August 2021. In its opinion, the majority wrote that the CDC relied on “a decades-old statute that authorizes it to implement measures like fumigation and pest extermination…it strains credulity to believe that this statute grants the CDC the sweeping authority that it asserts…if a federally imposed eviction moratorium is to continue, Congress must specifically authorize it.”
2. Today, mortgage rates hit a 20-month high at 3.22%. While this is historically low (since 1971, rates have been lower than this week’s 3.22% just 3% of the time), mortgage, housing, and finance professionals are predicting that rates could balloon as high as 4 percent.
3. Forbearance agreements are expiring. The total number of loans now in forbearance decreased by 34 basis points from 2.62% of servicers’ portfolio volume to 2.28% as of late October 2021. Of significance within the the cumulative forbearance exits for the period from June 1, 2020, through October 10, 2021, at the time of forbearance exit, 16.7% represented borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place yet.
4. Courts have largely reopened and adapted since the early days of the pandemic. With them have come a steadier stream of foreclosure sales and other collection activity.
If you’re interested in consulting with an experienced consumer bankruptcy attorney, please call us at (804) 423-1382 for your free consultation.
