Entire Reverse Mortage May Be Paid Off in Chapter 13 Plan After Death of Debtor’s Mother, Court Rules

16 Jun Entire Reverse Mortage May Be Paid Off in Chapter 13 Plan After Death of Debtor’s Mother, Court Rules

In re Brown, 2010 WL 1903771 (Bky.D.S.C. March 2, 2010), a recentSouth Carolina bankruptct court decision,held that the entire balance of a reverse mortgage could be paid off over the five year life of a chapter 13 plan.

In this case, the debtor and her daughter had lived in the home belonging to the debtor’s mother for forty years. In 2007, the debtor’s mother died, leaving the home to the debtor. The home was subject to a reverse mortgage upon which $29,524.44 was owed. The reverse mortgage provided that the entire balance was due and payable immediately upon the mother’s death.

Upon learning of the mother’s death, the reverse mortgage was called, and foreclosure proceedings were commenced. The debtor then filed chapter 13, proposing in her plan that the $29,524.44 would be paid over five years, with interestat 5.25 percent, with paymentsof $561.00 per month.

The bankruptcy court overruled the reverse mortgage holder’s objections to the chapter 13 plan. It also denied the reverse mortgage holder’s motion that it be allowed to proceed with foreclosure, ruling that the plan was proposed in good faith, and that a reverse mortgagewhich came due before the filing of a chapter 13 bankruptcy could be paid over the five year life of the plan.

According to the court, section 1322(c)(2) of the bankruptcy code allowed the payment over five years of any mortgage upon which the last payment came due prior to the date of the last chapter 13 plan payment. This section allowed the debtor to modify the terms of the reverse mortgage, extending it over five years.

The court also noted that itappeared feasible for the debtor to make the payments due under the plan, becauseher daughter was contributing financially to the household, as was the debtor’s son, who had recently moved into the home. Additionally, the debtor had held the same job for eleven years, and consequently she appeared to have stable employment.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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