What happens to a reverse mortgage after bankruptcy?
Based on my experience in the field, if a person has taken out a reverse mortgage and then files for bankruptcy, the process of what happens to the reverse mortgage will depend on a few factors. The type of bankruptcy that is filed, such as Chapter 7 or 13, will determine how the reverse mortgage will be treated.
If a person files for Chapter 7 bankruptcy, which is a type of bankruptcy that liquidates a person’s assets to pay creditors, the reverse mortgage will be treated as an unsecured debt. Unsecured debts are considered to be the lowest priority in bankruptcy proceedings, so it is likely that the reverse mortgage will not be paid as part of the bankruptcy process.
However, if a person files for Chapter 13 bankruptcy, which is a type of bankruptcy where the person is allowed to keep their assets and set up a repayment plan for their creditors, the reverse mortgage may be included in the repayment plan. Depending on the specifics of the repayment plan, the reverse mortgage may be paid back in full or partially over time.
Ultimately, the reverse mortgage lender can still take action to collect the debt even after the person files for bankruptcy. The lender may pursue a deficiency judgment, which would allow them to collect the remaining balance on the reverse mortgage even after the bankruptcy.
It is important to note that bankruptcy should not be taken lightly, and people considering filing for bankruptcy should consult with a legal professional first. Additionally, people who are considering taking out a reverse mortgage should understand the bankruptcy implications of the loan before they agree to it.
TLDR: the mortgage stays in place unless the property is sold or abandoned.
Hope that helps you out. If you need help from a Utah lawyer, call this one:
Jeremy Eveland
17 North State Street
Lindon UT 84042
(801) 613-1472
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