Bankruptcy and Reverse Mortgages in Retirement

According to elder justice advocates, the population of America’s seniors will expand rapidly over the next two decades, and many of them are in danger of struggling with debt.  According to a news release from the National Consumer Law Center in MarketWatch, personal bankruptcy and reverse mortgages go hand-in-hand when it comes to helping older adults to deal with higher debt loads.  Tara Twomey, the Project Director for the National Consumer Bankruptcy Rights Center and Of Counsel attorney at the National Consumer Law Center, contends that two tools exist to help the elderly with financial distress: personal bankruptcy and reverse mortgages.
According to Twomey, many legal practitioners don’t often consider the two options alongside one another and instead view them as mutually exclusive.  This is a mistake, she explains, and contends that more bankruptcy attorneys should know the ins and outs of reverse mortgages to better assist senior clients.  At the Emerson Law Firm, we have been helping consumers throughout the Chicago area for years, and we can talk with you today about managing your debts.
More Seniors, More Debt
Why is it important to consider both consumer bankruptcy and a reverse mortgage?  Reverse mortgages are marketed to many older adults as tools to have more cash on hand during retirement years.  As such, it can look like a solution to getting out of debt.  But in a number of situations, personal bankruptcy may be the better option.
Are enough seniors really facing financial distress?  According to data from the U.S. Census Bureau, the senior population in this country likely will grow from 40 million people aged 65 and older as of 2010 to about 65 million retirees by the year 2025.  And for a high percentage of those elderly adults, the recent recession has cost them many of the luxuries associated with retirement.
Since 2009, Twomey explains, “those nearing retirement—ages 55 to 64—have seen their median annual income drop nearly four percent.”  The lack of wage growth in the typical years before retirement means more seniors will be dealing with debts and an inability to pay.  Indeed, “those age 50 and older now carry more credit card debt, on average, than their younger counterparts.”
Intersections of Reverse Mortgages and Personal Bankruptcy
Here’s the problem, according to Twomey: “few bankruptcy practitioners know enough about reverse mortgages to adequately advise their senior clients.”  And on the flip side, Twomey says, “few reverse mortgage housing counselors understand enough about bankruptcy to refer clients to a bankruptcy attorney when that may be an appropriate course of action.”
Here’s what a reverse mortgage can do: it allows a homeowner to liquidate the equity they’ve built up in her home over the course of a lifetime while allowing her to remain in her home.  The money from a reverse mortgage can allow a senior to meet monthly expenses and to pay for large expenses like mortgages or long-term care.  And unlike a traditional “forward mortgage,” reverse mortgages don’t require monthly payments.
Filing for Chapter 7 bankruptcy can allow an older consumer to erase her debts while exempting certain amounts of her property.
Clear intersections exist between the two options for many of Illinois seniors, yet reverse mortgages and personal bankruptcy are very complicated.  As such, it’s important to have an experienced Oak Park bankruptcy lawyer who can discuss your options with you.  Contact us today to learn more about how we can assist you or your elderly loved one.
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