With the number of loans in forbearance decreasing every day, many of our clients are seeking our advice on the next steps to take in bankruptcy. This is especially true in light of the recent Consolidated Appropriations Act (CAA) and its reference to a forbearance supplemental claim. Below is a high-level summary of the Forbearance Supplemental Claim and how creditors can use it within their existing bankruptcy process.
Forbearance Supplemental POCs (Forb SPOCs) are allowed, but not required per the recent legislation (CAA). Additionally, the CAA only applies to loans covered under the CARES Act, so technically the recent CAA only applies to federally backed loans.
That said, the industry trend is moving toward filing these Forb SPOCs for all investors/all loan types. The logic is that if a forbearance was granted on any loan (even though not required under the CARES Act), then a Forb SPOC can be used to secure repayment. While there is always risk of an objection to claim, if that occurs, the outstanding delinquency can be addressed as part of the response to the objection. This would move the file to litigation much like filing the Motion for Relief (MFR) would do later.
Timing per the CAA is to file the Forb SPOC within 120 days after the forbearance has ended, so we recommend using that as a guide when determining how soon these SPOCs need to be processed after forbearance.
One key element is to ensure the system of record has been audited to determine the true amount of delinquency after the forbearance. For many clients, this is similar to a post-petition delinquency audit completed before a MFR referral. This post-petition audit can be leveraged for the MFR if the Forb SPOC is not successful in securing repayment.
In summary, the process should work as follows. After the forbearance period has ended, if the loan is not reflecting post-petition current, we recommend:
Audit to confirm post-petition delinquency (similar to MFR audit) and validate debtor has not already taken adequate steps to resolve delinquency within the bankruptcy.
File a Forb SPOC to itemize any post-petition amounts that are still outstanding, even if not originally part of the latest forbearance.
Monitor the docket for debtor or trustee to take action and amend the debtor’s plan to ensure the Forb SPOC is repaid in the bankruptcy.
File a MFR if an amended plan is not filed, as this will prompt action in the case.
The above does not cover every scenario in bankruptcy, but it is a guide to protect creditor’s interests in each case. We expect these measures to provide clarity and reduce confusion for Debtors and Trustees as to forbearance terms and remaining post-petition payments. Should you have any further questions, feel free to contact our office at Hilary.Bonial@BonialPC.com or Paul.Cervenka@BonialPC.com.