Study- Twomey, Tara: Crossing Paths: The Intersection of Reverse Mortgages and Bankruptcy

Abstract: The senior population of the United States is expected to grow rapidly over the next twenty years. Rather than enjoying their golden years, increasingly older Americans are struggling with less income, greater debt and insufficient retirement savings. The average amount of debt held by seniors has soared over the last decade. Many now rely on credit cards to cover their basic living expenses. Rising mortgage debt has compromised the use of home equity as a retirement nest egg. There are few easy solutions. Two tools available to seniors to combat financial distress are reverse mortgages and bankruptcy. Reverse mortgages allow seniors to tap their home equity to pay off outstanding debts or supplement monthly income. Bankruptcy provides an opportunity to obtain a fresh start by discharging certain debts or adjusting one's financial affairs. The two options — reverse mortgages and bankruptcy — are not mutually exclusive. This Article explores the intersection between reverse mortgages and bankruptcy and when they can or cannot work together to assist seniors facing financial distress. Summary: This is an excellent primer for bankruptcy attorneys on reverse mortgages, giving both concrete rules for the amounts financing, clear examples and also defenses against the inevitable objections and concerns that trustees and courts may raise. Commentary: The statement could not be more true that: Few bankruptcy practitioners know enough about reverse mortgages to adequately advise their senior clients, and 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. As seniors face greater debt burdens a better understanding of the relationship between reverse mortgages and bankruptcy is needed. Hopefully a greater dialogue and interaction between bankruptcy attorneys, reverse mortgage lenders and housing counselors can be developed. For a copy of the opinion, please see: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2437065