If you file for bankruptcy, the far-reaching impact on your life may be greater than you imagine. Not only are you potentially bankrupt, but bankruptcy can also prevent you from receiving loan payments from your reverse mortgage.
Learn how bankruptcy and repayment of your mortgage are related and learn more about how they are related. Reverse mortgages are one of the most common types of mortgages in the US and are the main source of income for many older homeowners. It’s a great option for older homeowners who need extra income or help in a financial emergency.
When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan in which the lender pays you. Reverse mortgages take part of the equity in your home and convert it into payments to you – a kind of advance payment on your home equity. The money you get usually is tax-free. Generally, you don’t have to pay back the money for as long as you live in your home. When you die, sell your home, or move out, you, your spouse, or your estate would repay the loan. Sometimes that means selling the home to get money to repay the loan.
Depending on the state you live in, you may not be able to protect 100% of your equity in your home. Your reverse mortgage won’t stop you from filing for bankruptcy, but it will affect you and can have far-reaching consequences. If you go bankrupt, you will have to pay for it, which can cause a lot of trouble.
In most cases, a clause in your credit documents prevents monthly payments when filing for bankruptcy. If this is the case, you may be in breach of contract, depending on how much equity you have set aside in the original agreement with your lender. Getting a lawyer to study creditworthiness before filing can help you avoid a hidden bankruptcy. While reverse mortgages are helpful for homeowners in certain situations, they can also cause problems for others.
The Federal Trade Commission has warned of fraud and misleading sellers, and lenders often try to get you to sign up for more services. If your lender makes suggestions about how to use your payments, this is a potential alarm signal and could signal ulterior motives. Often they just try to sign up for “more services,” and you forget about it, “the FTC said.
Your financial options are big decisions, so make sure you make them with 100% confidence. If you don’t understand the costs and features of a reverse mortgage, the FTC gives you the warning to leave if you don’t understand them.
Fortunately, there are other plans you can explore to change your financial situation without the more significant effects of bankruptcy. If mortgage repayment is an essential part of your monthly budget, bankruptcy is not the best debt solution.
One such option is credit counseling from CreditGUARD; a certified credit counselor can help you take positive steps toward your debt through a debt management plan and financial education. Call us today to find out more about our free, one-stop financial advice service for adults and families.