Indebtedness And Bankruptcy

For senior adults living on a fixed income, escalating debt can lead to financial ruin.

More and more of the elderly are in outright financial distress. One in seven households headed by someone 65 years of age or older was considered heavily indebted in 2006 – devoting at least 40% of their income to debt payments, according to the Federal Reserve’s Survey of Consumer Finances. That compared with one in ten among all households in debt.

While home loans are usually their biggest payment, the elderly have been rapidly accumulating other debts as well. Credit card bills – to cover everything from minor emergencies to ongoing essentials – have risen sharply. All told, the debt burdens of borrowers between the ages of 65 and 74 have doubled in the past 10 years according to the Federal Reserve.

A recent report from Demos, a New York based public policy research group found an alarming increase in credit card debt among older Americans. The Demos report “Retiring in the Red,” found that self-reported credit card debt among seniors age 65 and over increased to 89% in the past 10 years. Seniors between 65 and 69, presumably the newly retired, reported a staggering 217% increase in credit card debt over the same period of time.

More and more Americans are drowning in debt and turning to bankruptcy court for relief. As a group, people over 65 have the distinction of having not only the fastest growing home debt, but also the fastest growing share of personal bankruptcy filings and the biggest growth in demand for credit counseling. Recent studies show that over 82,000 Americans 65 or older filed for bankruptcy this past year, up 244% in the past 10 years, according to the Consumer Bankruptcy Project, a study done at Harvard.

The United States Department of Justice, which runs the federal bankruptcy trustee program, released a study that painted a grim picture of the future for many older Americans.

The Justice Department concludes that although the elderly are less likely to file Chapter 7 bankruptcy than younger people, a significant number of them do file each year. The number of elderly filers is likely to grow in the coming years.

A reverse mortgage can be done if the borrower(s) have filed bankruptcy and it has been discharged. In some cases, the bankruptcy can be paid at closing. Call Kaye Financial if you have filed bankruptcy. Our experience as one of the top a reverse mortgage lenders in Michigan will advise if a reverse mortgage can work for you!

As stated by a professor at Cornell University, “more than 620,000 elderly households could be raised above the poverty line if they obtained a reverse mortgage”.

Reverse mortgages generally must be “first” mortgages, that is, they must be the primary debt against your home. So if you owe money on your property, you generally must do one of two things:

• Pay off the old debt before you get a reverse mortgage; or
• Pay off the old debt with the money you get from a reverse mortgage.

Most reverse mortgage borrowers pay off any prior debt with an initial lump sum advance from their reverse mortgage.

The amount of money you would receive depends most on the specific mortgage plan or program you select. The experts at Kaye Financial will research every available program with various lenders to ensure the best plan with the best rate for your specific situation. Some reverse mortgages cost a lot more than others, and this reduces the amount of cash you would receive. Within each loan program, the cash amounts you can expect depend on:

• Your age – the older you are the more cash you can get, and
• The value of your home – the more your home is worth, the more cash you get and
• The current interest rate. The average interest rate for the past 15 years on the HECM monthly adjustable is 5.72% and
• Closing costs – there are no out of pocket expenses, so your closing costs can be taken right out of your net proceeds.

When the loan is over, you or your heirs must repay all of your cash advances plus interest, which is usually satisfied by the sale of the home. Because a reverse mortgage is a non-recourse loan, you or your heirs are never going to owe more than your home is worth.