Many homeowners are still struggling to get on their feet after 2008’s housing crisis, and reverse mortgage options have become a popular route for those in need of financial breathing room. Many remain under water and wonder how a reverse mortgage impacts a potential bankruptcy.
A reverse mortgage, or a home equity conversion mortgage, allows long time homeowners to access and live off of the home equity they’ve built after decades of mortgage payments. People with a reverse mortgage must pay property taxes and homeowner’s insurance but are no longer responsible for a monthly mortgage payment.
Some reverse mortgages also give borrowers cash payments in lump sums or monthly distribution. Only homeowners aged 62 and older are eligible for a reverse mortgage in the United States. The reverse mortgage loan becomes due once the borrower dies, sells the house, or moves out for more than 12 consecutive months. Payment can be made by refinancing the home and making mortgage payments pursuant to it, selling it and distributing any remaining equity, or turning it over completely to the lender.
The unique circumstances of a reverse mortgage leaves many borrowers wondering if they are still eligible to file bankruptcy. In short, yes, if you have a reverse mortgage you can still file bankruptcy, but there are some special considerations you should make. First, how valuable is your home?
Many people who take out a reverse mortgage have a lot of home equity. You may have so much equity that not all of it can qualify as exempt property, meaning you could be at risk for losing your home in a bankruptcy proceeding.
It’s also important to know the balance of your reverse mortgage loan. Although you may not have a monthly payment, you do have a loan balance when you have a reverse mortgage that is due when you die, sell the house, or move out for more than 12 consecutive months. Knowing the exact amount due is an important consideration when pursuing a bankruptcy. Finally, it’s important to be familiar with all the other terms of your reverse mortgage before filing bankruptcy.
For example, if you file bankruptcy will your lender continue to make monthly distribution payments pursuant to your loan? Some do not, and this can be a deterrent for filing bankruptcy for some borrowers.
No matter what kind of mortgage you have or what your financial situation, filing bankruptcy is a complex undertaking that should be handled by an experienced professional. A Cleveland bankruptcy lawyer will guide you through the process from start to finish, making sure your interests are always protected and advanced. Contact the bankruptcy lawyers from Luftman, Heck and Associates at (216) 586-6600 for a free consultation toward receiving the debt relief you need.