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BANKRUPTCY: Debtor wants to file Chapter 7 bankruptcy. They…

BANKRUPTCY: Debtor wants to file...
BANKRUPTCY: Debtor wants to file Chapter 7 bankruptcy. They have a Reverse Mortgage on their home. Since they are not making payments on the repayment of the Reverse Mortgage, how does bankruptcy impact the home (Primary Residence).
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Answered in 6 minutes by:
3/22/2018
Ray
Ray, Lawyer
Category: Legal
Satisfied Customers: 46,426
Experience: 30 years in civil, probate, real estate, elder law
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Hi and welcome to JA. Ray here to help you today.Please bear with me a few moments while I review your question and respond.

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You can file and keep the house.Here is reference to that issue.

https://www.bankrate.com/finance/debt/bankruptcy-option-with-reverse-mortgage.aspx

ou have a reverse mortgage and you’re considering filing for bankruptcy, you’re right to wonder whether you might face some problems. For instance, you’ll want to know whether you’ll default on your reverse mortgage when you file, as well as the ramifications of doing so.

Three other questions to consider before filing for bankruptcy include whether you’ll be able to:

  • protect the equity in your house
  • retain access to any remaining lump sum payments, and
  • withdraw your equity.

Typically, you must have equity equal to at least half the value of the property to qualify for a reverse mortgage. The problem is that most states don’t allow you to protect (exempt) substantial amounts of equity in bankruptcy. In short, you’ll lose your nonexempt equity in a Chapter 7 bankruptcy, and have to pay for it in a Chapter 13 bankruptcy.

Here are some bankruptcy concepts you should understand:

  • Bankruptcy exemptions. You can keep many of your assets when you file for bankruptcy. But your state limits the type and value of property you can exempt. Some let you protect as little as $5,000 in home equity while a few others give you a homestead exemption that will cover 100% of your equity. (Go to Bankruptcy Exemptions by State to find out how much you can protect.)
  • Chapter 7 bankruptcy. In a Chapter 7 bankruptcy case, you can keep your exempt equity. However, if you have more than you can exempt, the bankruptcy trustee assigned to the case will sell the house, give you your exempt equity, and distribute the nonexempt equity to creditors.
  • Chapter 13 bankruptcy. By contrast, in Chapter 13 bankruptcy, your property will be safe, but there’s a catch: The nonexempt home equity will affect your monthly payment amount. Specifically, you’ll have to pay an amount equal to the nonexempt equity (if not more) through a three- to five-year plan.

I appreciate the chance to help you today.Thanks

If you can positive rate5 stars it is much appreciated

Ray
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Experience: 30 years in civil, probate, real estate, elder law
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