Recently on our legal forum a user asked, “I am in a financial crisis. I have thought about filing for bankruptcy. Last week my parent’s both died in a car accident. They don’t have many assets, but they do have close to a million dollars in their 401K account. They were over the age of 70 and already withdrawing money from their account. I am their only child. Do I get their money when they die? Can I get it all at one time?”
One of the most common questions investors ask is, “How much do I need to invest today to ensure I have a good retirement?” Investment reporter Matt Krantz from USA Today suggests the number may not be a difficult to determine as we thought. In fact, according to investment analysis done by investment management firm T. Rowe Price if you save $82.28 per day you should be able to retire in thirty years with enough wealth to sustain you for another thirty years, even with inflation. Unfortunately, many seniors will fall woefully short and will not have enough money to retire.
It’s never too early to plan for retirement. In fact, if you have graduated from college or started your first job it’s a great idea to take your first paycheck and allocate a percentage towards long-term savings. Do this before you get used to the income and you won’t even miss the money. Saving immediately also gives you the benefit of accrued interest.
According to CNN Money, this year has been a great year for many 401K investors. CNN Money reports that on average 401K retirement balances have reached “$84,300 during the third quarter, up more than 11% from $75,900 last year,” this according to information provided by Fidelity Investments after reviewing an estimated 12.6 million accounts. Continue reading
I am a first year generation baby boomer. I am currently old enough to retire, and I consider myself an average baby boomer facing retirement. My assessment about my situation is a little bleak. I feel like if our federal government doesn’t do what it says it was going to do, there might be more seniors heading toward that bridge one day in which you get out of the weather to live under. Continue reading
The only time it is ever a good idea to cash in a 401 (k) retirement plan early is if you are the beneficiary of the deceased owner of the 401 (k), you actually are in dire need of the money, and you are in a situation where the tax implications for doing so do not cause you any additional penalties. Other than that, there is really not many good reasons to ever cash in a 401 (k) retirement plan retirement account early. Continue reading
A recent study conducted by the AARP shows that between 1991 and 2007, the number of seniors over 65 years of age filed for bankruptcy protection at a rate that went up 150 percent when younger American’s filings were on the decline. Notice, those years did not include the Great Recession period when many more seniors filed for bankruptcy protection. Here is my take on why more seniors may be going into bankruptcy: Continue reading
As a larger percentage of the population closes in on retirement age, many are realizing the only significant asset they have for retirement is the equity in their home. This means a reverse mortgage is becoming more common as a way to make ends meet. But because of the increasing expenses associated with aging, such as higher insurance premiums and increasing costs of medical care, even those with a reverse mortgage may have to consider bankruptcy–whether it is Chapter 7 or Chapter 13–to alleviate their situation.
What is a reverse mortgage?
A reverse mortgage is a loan to a person who is 62 years old or older that is based on the equity in that person’s home. The reverse mortgage loan may allow the person to access their home equity by receiving a lump sum, a monthly stream of payments, or a combination of both. A reverse mortgage loan is structured such that the homeowner does not have to repay the money until one or more of the following happens:
- The homeowner dies,
- The homeowner sells the home,
- The homeowner does not live in the home for one year, as they have moved into an assisted care facility or other location, or
- The homeowner otherwise breaches the requirements of the loan, which are generally structured to ensure the home value is not impaired because of disrepair of the home or a failure to maintain insurance to protect against damage to the home.
In a reverse mortgage loan, the homeowner is not typically required to make any payment on an amount borrowed unless one of the above conditions occurs, as even interest on the amount borrowed is simply added to the amount of the loan owed. This means that over time the balance due on a reverse mortgage grows, assuming the homeowner is not repaying the borrowed amount.
What happens to a reverse mortgage in bankruptcy?
If you have a reverse mortgage, you do still have the option of declaring either Chapter 7 or Chapter 13. The reverse mortgage lien holder simply has a secured interest in your home as would be the case with a traditional mortgage or home equity line of credit. This typically means that the reverse mortgage cannot be eliminated by the bankruptcy.
This means you as the homeowner need to consider several implications of reverse mortgages when declaring Chapter 7 or Chapter 13, including but not limited to the following:
Home Equity Amount
If you are attempting to keep your home after the bankruptcy, whether you can will depend in part on how much equity there is in your home. The amount of equity you can protect in your primary residence in Chapter 7 varies from state to state. If the equity in your home after considering the balance of the reverse mortgage is above the threshold for your state, then the bankruptcy trustee may attempt to liquidate your home in order to use that money to satisfy your creditors.
However, if you have little to no equity in your home, the bankruptcy trustee has no reason to liquidate your home, so will likely be able to keep it.
Reverse Mortgage Distributions
If you are receiving a monthly distribution from your reverse mortgage that you count on to cover living expenses, remember that the lien holder may cease sending you those payments during the bankruptcy. How the lien holder will treat distributions during a bankruptcy will be based on the wording in your individual reverse mortgage agreement. Likewise, being able to receive future distributions from your reverse mortgage after a bankruptcy may vary based on the wording of the agreement.
Should I seek legal counsel?
The information above is general in nature and should not be considered legal advice. Therefore, if you have a reverse mortgage and you are considering filing Chapter 7 or Chapter 13, you should speak with a bankruptcy attorney. A bankruptcy attorney will be able to evaluate your specific situation in light of the applicable bankruptcy laws, the wording of your reverse mortgage agreement, and the amount of home equity protected from bankruptcy in your state to give you a definitive answer on the impact declaring bankruptcy will have for you.
- Discharge and a Loan Modification After Bankruptcy (betterbankruptcy.com)
- Foreclosure Fees Sometimes Hidden in Bankruptcy (betterbankruptcy.com)
- Making a Successful Chapter 13 Work for You (betterbankruptcy.com)
- A Lawyer is Worthy of His Hire (betterbankruptcy.com)
- Bankruptcy and a Two Year Wait for a Mortgage After (betterbankruptcy.com)