Bankruptcy and Reverse Mortgages

19 Jun Bankruptcy and Reverse Mortgages

Senior citizens with fixed incomes frequently think about filing for bankruptcy. Even though we have experienced a horrible mortgage meltdown, many retired people have actually paid off their houses and, at least in theory, still have equity. Yet their social security income is not enough to live. Even worse, many pensions have been cut back because of the company’s bankruptcy. So here are the problems we need to solve:

  • Ongoing high expenses
  • High credit card balances
  • Lawsuits by credit card companies
  • Judgment creditors threatening to get a lien against the senior’s house
  • Inability of the senior to sell the house in this very difficult real estate market
  • Inability of the senior to get a mortgage or refinance on her house because of lack of income and frozen credit markets

What can be done? Reverse mortgages are not for everyone. Here are some problems with reverse mortgages:

  • High fees to set up a reverse mortgage
  • Complex regulatory requirements
  • Hard to distinguish honorable from unscrupulous in the industry
  • Can’t leave the house to children as a part of the senior’s estate
  • Can’t take advantage of subsequent increase in value of house

But for the right person, there can be many benefits:

  • Seniors get to keep their house.
  • Seniors get the chance to tap equity in the house for living expenses
  • Creditors can’t touch the house – it is now encumbered by a mortgage
  • Not likely to be challenged as a fraudulent transfer
  • Reverse mortgage proceeds can be used to settle debts – now possibly for a fraction of the face value.
  • Subsequent bankruptcy case by the senior would not lead to loss of the house.

Reverse mortgages are not for everyone. Careful planning and thoughtful legal advice is necessary.

You can get such legal advice from the outstanding lawyers here at Bankruptcy Law Network.

And in Illinois and Wisconsin, you can get such legal advice from us at Lakelaw. Lakelaw represents people and business in bankruptcy and mortgage foreclosure cases.

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