Q: On average how reduced are debts after a Chap 13 bankruptcy? Does refi/2nd mortgage affect the decision to keep home?
I am a concerned daughter of a couple living in Athens County, Ohio. My father is ill with cancer (being treated through the Veteran Affairs system) and during my last visit (recent) my mom indicated they only have approximately 2 months worth of funds left to pay bills before potentially considering bankruptcy or a reverse home mortgage. I believe they have either refinanced or taken a second mortgage on their home (and the home is in fairly rough condition but they do have 4.2 acres of land) and am not sure how much they still owe on the house. How can I help them make the most informed decision for their particular situation? They obviously do not have the money to hire an attorney to assist them. I am also 5 hours away in Virginia so am not able to be there in person for the day-to-day assistance. I am also identified as the executor or their will and need to know how this could/would affect their estate (I would imagine if they are not insolvent they would be close though).
A: No way to tell, because every Chapter 13 is different than every other Chapter 13.
A: The reduction of debt is on a case by case basis where the facts are different in every case, but somewhere between 0 and 100%.
A: I do not practice in Ohio. It's important to know the current value of the property and how much is owed on the house and land. In a Chapter 7 bankruptcy their house could be sold if there is significant equity...that would be a disastrous outcome. A certain amount of equity can be "exempted" but that's a state-by-state issue that an attorney should help you with to be sure. Also be sure that both the house and the acreage are encumbered by debt. If there is a separate parcel that is debt-free, that would put the property at risk in a Chapter 7. Chapter 13 avoids the risk of property being sold, but your parents would need to have a source of income to make monthly plan payments and pay other bills as they come due going forward. It isn't clear whether they can do that or not. You might need to get specific with them about which bills they are paying and would need to pay in the future. Many attorneys will provide a free first consultation and could give you some basic guidance on these and other important questions. Some jurisdictions have a system in place where Chapter 13 attorney fees are paid over time, as part of the monthly plan payment. This could help. As for reverse mortgages, that will usually relieve homeowners of the need to make mortgage payments, but homeowners usually still must pay the property tax and insurance. A reverse mortgage usually results in the lender owning the property at the end of the homeowner(s)' life time, so while it might solve an immediate problem, be sure that is how your parents (and their heirs) would want to dispose of the property after their life time. It would be important to know how that a reverse mortgage will work if both parents are on the deed and one passes, or perhaps more critically, if only one is on the deed to the property. Above all, I wish you and your parents the best of luck in this difficult time.
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