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How Wildfires Affect Homeowners’ Debt

by Jesse Campbell on
11/25/2025
in Repaying Debt , Housing and Homeownership
Woman talking to contractor.

Wildfires don’t just destroy homes: they destabilize finances, disrupt routines, and force families to make expensive decisions under pressure. While insurance, FEMA assistance, and community support can help, many homeowners still face significant out-of-pocket costs due to the economic impact of California wildfires. Without adequate savings or coverage, it’s common for survivors to rely on credit cards or personal loans or take on other forms of debt just to get through the aftermath.

Why wildfire survivors often turn to wildfire loans and take on new debt

When a wildfire strikes, most households need to make urgent purchases long before insurance claims are paid out. That often leads to three primary forms of debt:

Credit cards

Homeowners frequently use credit cards for immediate necessities such as temporary housing, food, gas, clothing, debris removal, or minor repairs. Credit fills the gap while waiting for insurance, FEMA aid, or SBA loan approvals.

Personal loans

If insurance coverage is delayed or insufficient, many turn to personal loans. After major wildfires, some banks and credit unions offer special “disaster recovery” loans. These loans may be more affordable than credit cards but still carry relatively higher interest rates.

SBA wildfire loans: low-interest disaster home loans

In federally declared disaster areas, homeowners can apply for Small Business Administration (SBA) disaster home loans, even if they aren’t business owners. These low-interest, long-term loans can cover home repairs, rebuilding, and personal property losses. For many families, SBA loans help prevent spiraling credit card debt or long-term delinquencies.

Who pays for wildfire damage when insurance falls short?

A homeowner’s insurance coverage, or lack of it, is one of the biggest predictors of whether wildfire survivors will need to take on new debt. Unfortunately, many California homeowners discover after a wildfire that they’re underinsured.

A San Francisco Chronicle analysis of more than 60,000 claims found that two-thirds of homeowners who lost their homes were underinsured by an average of 34%, even with extended replacement cost coverage in place.

When insurance coverage falls short, homeowners may face:

  • Large out-of-pocket rebuilding costs. If insurance only covers 65% of rebuilding costs, survivors must use savings, take on loans, or rebuild smaller.
  • Lost home equity. Rebuilding with cheaper materials or limited square footage can lock in long-term losses.
  • Erosion of retirement or investment accounts. Tapping savings to cover insurance gaps reduces future financial stability.
  • Increased risk of foreclosure. If the mortgage balance exceeds the home’s current rebuild value, keeping the home may become financially impossible.

Learn more about how to prepare for a wildfire.

How credit cards and loans fill the gap after a wildfire

In the short term, credit cards and personal loans allow homeowners to pay for essentials while displaced. Typical expenses include:

  • Hotels or short-term rentals
  • Clothing and toiletries
  • Food and transportation
  • Temporary repairs or cleanup
  • Pet boarding or supplies

But long after the fire, these credit lines may continue to be used for:

  • Paying for gaps not covered by insurance
  • Replacing personal property
  • Covering everyday living costs during prolonged displacement
  • Managing new expenses like increased rent or temporary housing

Without careful planning, this debt can grow quickly, especially if interest rates are high.

How wildfires increase the risk of foreclosure

Disasters can put homeowners in a tough financial position, especially if mortgage payments become difficult. Fortunately, mortgage forbearance is often available after federally declared disasters, particularly for loans backed by Fannie Mae, Freddie Mac, FHA, VA, or USDA.

However, even with forbearance, homeowners may face risks such as:

  • Difficulty resuming payments once forbearance ends, especially if rebuilding is expensive.
  • Negative equity if insurance isn’t enough to restore the home’s previous value.
  • Limited ability to sell since sale proceeds may not cover the remaining mortgage balance.
  • Inability to refinance because lenders won’t refinance underwater homes.
  • Loss of future financial flexibility, since homeowners can’t borrow against equity that no longer exists.

These challenges make it critical to understand all available relief programs early.

Which relief programs can help homeowners manage wildfire-related debt

Homeowners navigating the financial aftermath of a wildfire may qualify for several types of assistance:

Mortgage forbearance

This should be your first step. Contact your mortgage servicer immediately if you’re in a disaster area.

FEMA grants (for declared disasters)

FEMA offers support for temporary housing, basic home repairs, essential furnishings, some medical needs, and transportation.

SBA disaster home loans

These offer long-term, low-interest alternatives to high-cost credit cards or personal loans.

State and regional wildfire relief programs

In California, for example, the CalAssist Mortgage Relief Program provides up to $20,000 to eligible homeowners.

Homeowner Assistance Fund (HAF)

Available in many states, HAF can help cover past-due mortgage payments, property taxes, utilities, and HOA fees.

Local nonprofit and charitable support

Community foundations, local relief funds, and faith-based organizations often provide grants for immediate needs.

If you're worried about taking on too much debt while trying to recover, MMI’s financial experts can help you understand your options and build a long-term plan.

MMI can help you recover financially after a wildfire

The debts you take on after a wildfire can be nearly as disruptive as the disaster itself. Credit card balances, new loans, or mortgage challenges can linger for years and slow your ability to rebuild.

At MMI, we offer simple, affordable solutions to help you get out of debt. Whether you’re navigating wildfire recovery or trying to get ahead of your bills again, our expert counselors can help you understand your options and create a personalized financial plan.

If you’re dealing with wildfire-related debt, reach out today for free, confidential credit counseling. We’re available 24/7, online or over the phone.

Tagged in Disaster recovery, Debt strategies

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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