Legal Question in Credit and Debt Law in California
I have 80 yr old parents who are both disabled and have fallen into financial difficulties since both had failing health recently. They are no longer able to pay their credit card bills due to having to pay for full time live in care for both of them and both being renal patients and diabetics with special diet needs on top of everthing else. They are now about to be sued by at least 3 different banks, for about $30,000 in debt. I looked into filing bankruptcy for them but was told that they could not file due to the fact that they had a reverse mortgage on their home. They have had this for at least 6 yrs. and took the money to help pay for medical bills and pay off their original mortgage. Their only income is social security and two pensions from my father, one from Calpers, and one from the labors union. Is the retirement money vulnerable to garnishment, and why can't they file for bankruptucy?
3 Answers from Attorneys
Hard to tell why they can't file for Chapter 7 bankruptcy. They owe a certain amount on the home because of the reverse mortgage. Is there more equity than they can exempt? Is their income too high for Chapter 7? Can they file a Chapter 13 and pay what they can afford if they can't file a Chapter 7 because their income is too high? These are some of the questions you need to ask a local bankrutpcy attorney. You do not give amounts they earn from social security and pensions or how much equity they have in the house or the value of other property they own. Hard to imagine their income would be too high but it is possible. Also, maybe they have too much home equity and cannot protect that equity because they may not be eligible for the homestead exemption since they don't live at the home (although I think the homestead exemption may apply in their case). If a lawyer told you they cannot file then you need to ask why not? and is Chapter 13 an option?
It is possible that the reverse mortgage has a provision regarding bankruptcy, and the reason you think they "can't" file is that they would lose their home under the terms of the reverse mortgage. Whether such a provision of the reverse mortgage is enforceable is something you may have to pay an attorney to answer as the answer may not be so straightforward.
(I suspect they have no equity at this point since they got the reverse mortgage so recently.)
As for their income, if they are below or near the median income (excluding social security benefits) for California and haven't filed a previous bankruptcy, it would be surprising that they could not file. More facts would be needed.
If as mentioned above, the reverse mortgage has some sort of default provision regarding bankruptcy AND if it is enforceable, AND if they want to stay in their home, then debt settlement might be worth a try. Creditors will often take 60% of what they're owed to avoid filing a lawsuit and obtaining a judgment that is not collectible.
I hope that helps.
One additional note: if their social security benefits and pensions render them low-income, they may be able to obtain free legal help to file bankruptcy. Check the website for the US Bankruptcy Court for the Southern District of California in San Diego, and there should be information about pro bono services for low-income filers.
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