Reverse Mortgages in Bankruptcy
If you are at least 62 years old and have equity in your home, you may be able to get a reverse mortgage. Reverse mortgages generally allow you to either eliminate your monthly mortgage payment, receive a lump sum payment, enjoy a monthly income from your equity, or have access to a line of credit.
How Reverse Mortgages Work
If you qualify based on age, income, equity and credit guidelines, reverse mortgages may allow you to live in your home for the rest of your life without having to pay the mortgage. You will still be responsible, however, for property taxes and property insurance payments each year. The balance of the mortgage will increase instead of decrease; you would just not be responsible for it as long as you still reside in the property, maintain property taxes, insurance, and needed repairs. Your children or other heirs may still inherit the property, but they would likely have to refinance or otherwise pay off the mortgage owed on the property.
Filing For Bankruptcy With a Reverse Mortgage
If you are having financial difficulties and need to file for bankruptcy relief, you may still do so even though you have a reverse mortgage.
Florida has one of the most generous homestead exemptions, so if you are filing in Florida, the equity in your homestead property is 100% protected, unless the property is larger than half an acre inside a municipality or larger than 160 acres elsewhere. Most debtors in Florida would be able to file bankruptcy and protect their home even with a reverse mortgage and substantial equity, but you should certainly consult with a bankruptcy attorney in your area to evaluate your particular case. Other states have more limited homestead exemptions.
It is also important to review the reverse mortgage documents as some of them include a bankruptcy clause, which means you will enter into default and the balance is accelerated if you file bankruptcy. This is rare but you should review the documents to ensure there is no such clause.
Also, some people who have reverse mortgages, fall behind on property taxes and/or insurance. The lender fronts these payments and then proceeds against the borrower for these payments and may ultimately foreclose on the property. If the amount is too high and the lender will not work with you on catching up outside the court system, bankruptcy may help you by freezing the foreclosure case and allowing you to catch up on those payments so that you may save your home.
Important Things To Consider
If you have a reverse mortgage and are considering bankruptcy, there are other things that need to be considered.
For example, if you received a lump sum payment and have the funds in a bank account, that money might not be protected in a bankruptcy. However, you may still file bankruptcy without losing the money.
If you file Chapter 13 bankruptcy, you would be able to keep everything you own; you would just have to make monthly payments to the court for the benefit of your creditors over a period of three to five years. The payment amount depends on your income, expenses, debts, and reason for which you are filing bankruptcy. If this is your case, you should discuss with an experienced bankruptcy attorney in your area to determine if bankruptcy is a good option for you and if so, which chapter would be a better fit.
South Florida Bankruptcy Attorneys
At Loan Lawyers, our Fort Lauderdale bankruptcy lawyers have helped over 5,000 South Florida homeowners and consumers with their bankruptcy and debt problems. We have saved over 1,800 homes from foreclosure, eliminated $100,000,000 in mortgage principal and consumer debt, and have collected millions of dollars on behalf of our clients due to bank, loan servicer, and debt collector violations, negligence and fraud. Contact us for a free consultation to see how we may be able to help you.