As a bankruptcy attorney in Seattle I meet with all kinds of people who may benefit from different options available to them depending on their situation. If you are (1) facing a foreclosure sale on your primary residence, (2) you have equity in your home, and (3) you are close to retirement age (62), a reverse mortgage may be the solution to all of your problems. Those who are asset rich and cash poor are not good candidates for filing bankruptcy if your goal is to keep your home. This is because your assets, including your home, can be liquidated to pay your creditors. In Washington you can protect up to $125,000 in equity in your home. If you have more equity than that, your home may be liquidated to pay back your creditors.
A Chapter 13 bankruptcy could be used to make up the payments you are behind on your home over a 60 month period, but if you don’t have any cash in which to fund the chapter 13 plan, your chapter 13 bankruptcy will fail and your case will be dismissed. The minimum payments that you would have to make are your normal home payments in addition to the payments you are behind divided by 60 months. The trustee’s office also charges an interest rate of 3.5-6% on all debts repaid. Likewise, a chapter 7 bankruptcy is probably not an option for those with a large amount of equity in their home above $125,000 as most other unsecured debts would be paid off after the home is liquidated, leaving the borrower with their debts paid off, but homeless. Some people use a bankruptcy to stop a foreclosure sale temporarily so that they can short sell the property, regular sell the property or in some cases obtain a reverse mortgage.
So What Exactly is a Reverse Mortgage?
A reverse mortgage is a mortgage in which a person who is at least 62 years old, uses equity in their home for a loan. This is a special type of loan in which the borrower has no personal liability for the loan and loan is not due until the borrower dies. After death, the lender will foreclose on the home and there is no deficiency balance assessed against the probate estate of the borrower. If the borrowers heirs decide that they want to retain the home, they may pay the balance due on the reverse mortgage after death.
If a reverse mortgage or filing for bankruptcy is not an option, debtors can always try to obtain a home equity loan in which to pay off their other debts and avoid having to file for bankruptcy, but this would only be advisable if there is significant equity in the home above what can be protected in a bankruptcy.
If you are in need of assistance regarding a home foreclosure feel free to contact Symmes Law Group at 206-682-7975