Whether you're contemplating filing for bankruptcy protection or have already begun the process, you may be wondering how a Chapter 7 or Chapter 13 bankruptcy will affect your ability to qualify for a reverse mortgage. If you already have a reverse mortgage on your home, you may be wondering whether you'll be required to give back some of the funds already received.
Read on to learn more about how reverse mortgages are treated in a Chapter 7 discharge or a Chapter 13 repayment plan:
How are reverse mortgages treated in a Chapter 7?
For purposes of a Chapter 7 discharge of debt, reverse mortgages and traditional mortgages are treated quite similarly. The only difference between these mortgage types is the chain of title -- in a traditional mortgage, the bank holds the title until you make your last mortgage payment; in a reverse mortgage, you hold the title until it is transferred to the lender upon your death.
In most Chapter 7 cases, you're permitted to retain a home secured by a traditional mortgage as long as you "re-affirm" the mortgage and continue making regular and timely payments. You'll be permitted to re-affirm your reverse mortgage as well, as long as no additional or priority liens are placed on the title.
How are reverse mortgages treated in a Chapter 13?
A Chapter 13 bankruptcy requires you to repay your creditors over a set period of time. After you've completed your repayment plan, some debts are discharged or "charged off," while others may be reaffirmed.
The primary difference between a reverse mortgage in Chapter 7 and a reverse mortgage in Chapter 13 is that in a Chapter 13, your monthly mortgage "income" may be considered part of the income available to repay your debts. This can benefit you by allowing you to repay your debts more quickly -- however, the process can be a bit painful if you've been using these funds for other purposes.
Will a recent bankruptcy affect your ability to qualify for a reverse mortgage?
Although both Chapter 7 and Chapter 13 bankruptcies can have an impact on your credit score and may affect your ability to qualify for a traditional mortgage, the effect on your ability to qualify for a reverse mortgage is somewhat lessened. Because the bank controls the monthly or periodic payments you receive, the bank is less worried about you defaulting on the loan than it would be if you were required to make monthly payments instead.
To learn more, contact a company like Shoemaker & Dart P.S. Inc. with any questions or concerns you have.Share
25 March 2015
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