How long is the waiting period to get a reverse mortgage if I had a Chapter 13 bankruptcy?

Short answer: you may not have to wait at all. A Chapter 13 doesn't automatically rule out a reverse mortgage, even while you're still making plan payments. What matters is how the bankruptcy is handled at closing, and whether you're refinancing the home you live in or buying a new one.

The general rule

Any liens on your home and any federal debts must be paid off or resolved. That's true no matter where you are in your plan.

Chapter 13 and a HECM refinance

If you're getting a HECM on the home you already live in, you need one of these:

• The bankruptcy is paid off at closing. The HECM pays the remaining Chapter 13 balance, using a payoff letter from your bankruptcy trustee.
• The court approves the loan. You get a court order, signed by the judge, saying you don't need to pay off the bankruptcy and may go ahead with the reverse mortgage. If you're choosing an adjustable rate, the court's permission needs to say so.

For a lot of people, the first option is the cleanest. The reverse mortgage pays off the plan, the plan payment goes away, and there are no required monthly mortgage payments afterward. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms.

Chapter 13 and a HECM for Purchase

Buying a home with a HECM for Purchase while you're in a Chapter 13 has stricter rules. You'll need to show all of these:

• At least 12 months of your bankruptcy payout period have passed by the time the FHA case number is assigned.
• Every required plan payment was made on time.
• The bankruptcy court has given you written permission, signed by the judge, to take on the new mortgage.

The lender also counts your court-approved plan payment as an expense when it figures your residual income.

How the bankruptcy affects your financial assessment

Every HECM includes a financial assessment. The lender reviews your income, your credit, and how you've paid property taxes, insurance, and other bills.

A bankruptcy on your record doesn't end the conversation. But if your credit doesn't meet HUD's standard and you can't document extenuating circumstances, the lender must require at least a fully funded Life Expectancy Set-Aside, or LESA. That's money held back from your loan to pay your property taxes and insurance for you. It lowers the money you can use for other things. For some people it's actually a relief, because those bills are handled.

If something outside your control led to the bankruptcy, like a serious illness, a job loss, or a death in the family, tell your loan officer early. Good documentation can make a real difference.

What to have ready

• Your Chapter 13 case number and the date the plan started.
• Your payment history, or a statement from the trustee.
• The trustee's payoff amount, if you plan to pay the plan off at closing.
• The name of your bankruptcy attorney. If you need court permission, they'll handle the motion.

Please don't send documents through the website. Your loan officer will tell you what's needed and the safe way to share it.

Related questions

• Waiting period after a Chapter 7 bankruptcy
• Waiting period after a Chapter 11 bankruptcy
• Does my home need to be paid off?

Every bankruptcy is a little different. If you're in a Chapter 13 now, call us at 530-888-6000 and we'll look at your dates and your plan before you spend a dime on an application.

Sources

• HUD HECM Financial Assessment and Property Charge Guide (Sections 2.16 and 2.25): hud.gov
• 24 CFR Part 206, Home Equity Conversion Mortgage Insurance: ecfr.gov