Will bankruptcy allow me to adjust my mortgage?
As a working retiree, I get Social Security and a small part-time income. Together, they put me below federal poverty level. If I apply and am granted bankruptcy, can I get a mortgage adjustment to lower my monthly payments?
With more than twenty years of mortgage lending experience prior to my current role as a financial and tax planner, I've seen this issue at various times.
The effect of bankruptcy on your mortgage will depend on the lender. Most lenders which follow the rules established by FNMA or FHA, and deal with the 'secondary market' for mortgages, will alter terms if you file for a refinance. With a bankruptcy on your credit report, your options will be limited. Alternatively, you could try to approach your mortgage servicer to discuss a loan modification, but bear in mind that they will likely go through the same process as a refinance.
It would be advisable to deal with a refinance or loan modification prior to a bankruptcy.
You may want to consider another alternative. A Reverse Mortgage can be used to payoff your current outstanding mortgage and eliminate the need to make monthly principal and interest payments. If you didn't have to make conventional mortgage payments, you'd likely find that your cash flow improves even on your small part-time income and Social Security.
Reverse Mortgages have improved with greater consumer protections and lower origination and servicing costs than before. They are backed by the government through the Federal Housing Administration (FHA). They are a great tool for many retirees that helps them make ends meet in retirement. Depending on your age, you'll find that a lender will provide a line of credit equal to 55% to 75% of your home's prevailing market value. This may be enough to get you out of your current mortgage balance.
For more information, I refer my clients to the resources available on the AARP website (http://www.aarp.org/money/credit-loans-debt/reverse_mortgages/)