Bankruptcy

Entire Reverse Mortage May Be Paid Off in Chapter 13 Plan After Death of Debtor?s Mother, Court Rules

By Craig Andresen, Minnesota Bankruptcy Attorney

In re Brown, 2010 WL 1903771 (Bky.D.S.C. March 2, 2010), a recent South Carolina bankruptct court decision, held that the entire balance of a reverse mortgage could be paid off over the five year life of a chapter 13 plan.

In this case, the debtor and her daughter had lived in the home belonging to the debtor’s mother for forty years.  In 2007, the debtor’s mother died, leaving the home to the debtor.  The home was subject to a reverse mortgage upon which $29,524.44 was owed.  The reverse mortgage provided that the entire balance was due and payable immediately upon the mother’s death.

Upon learning of the mother’s death, the reverse mortgage was called, and foreclosure proceedings were commenced.  The debtor then filed chapter 13, proposing in her plan that the $29,524.44 would be paid over five years, with interest at 5.25 percent, with payments of $561.00 per month.

The bankruptcy court overruled the reverse mortgage holder’s objections to the chapter 13 plan.  It also denied  the reverse mortgage holder’s motion that it be allowed to proceed with foreclosure, ruling that the plan was proposed in good faith, and that a reverse mortgage which came due before the filing of a chapter 13 bankruptcy could be paid over the five year life of the plan.

According to the court, section 1322(c)(2) of the bankruptcy code allowed the payment over five years of any mortgage upon which the last payment came due prior to the date of the last chapter 13 plan payment.  This section allowed the debtor to modify the terms of the reverse mortgage, extending it over five years.

The court also noted that it appeared feasible for the debtor to make the payments due under the plan, because her daughter was contributing financially to the household, as was the debtor’s son, who had recently moved into the home.  Additionally, the debtor had held the same job for eleven years, and consequently she appeared to have stable employment.

Full post as published by Bankruptcy Law Network on June 16, 2010 (boomark / email).