If you have lost control of your finances and are struggling with debt you cannot pay, you may be considering filing for bankruptcy protection. If you are over 62 years of age, you have another option beside bankruptcy, known as a reverse mortgage. Which one of those choices you select depends on many facts specific to your situation.

What Is A Reverse Mortgage?

A reverse mortgage is a financial instrument that allows you to extract the value (equity) out of your home, in much the same manner that a traditional mortgage puts equity into your home by your monthly payments.

With this contract, you would typically receive monthly check from the reverse mortgage holder, for a specified period. It has the advantage of providing you will a steady cash flow, allowing you to augment your income and pay your debts.

Now, there are a few things to keep in mind. You need to have equity in your home. If your mortgage is underwater, a bankruptcy is probably a better option. If you have children that you want to leave your house to, or some portion of the proceeds, your children will receive nothing, as the reverse mortgage will consume all of the value.

If you do not have children or other heirs, and you need a steady flow of cash, the reverse mortgage can be a helpful tool. You want to be careful when obtaining such a loan, as there are many who want to take advantage of the elderly in this situation.

Speak with a trusted financial advisor, and make sure you fully understand all of the fine print, so you are not saddled with excessive fees or unfair terms.

What Are The Benefits Of Bankruptcy?

Bankruptcy offers advantages to many overwhelmed with debt. If you have no equity in a home, a Chapter 7 allows you to discharge much of your debt, and obtain a fresh final start. If you do have a home that you want to save, a Chapter 13 may provide that opportunity. With a Chapter 13, you create a plan that allows you to repay most of your secured debts over a three to five year period.

A Chapter 13 allows you to keep a home, as long as you can make your regular mortgage payments and its value does not exceed your state's homestead exemption. The advantage of the plan is mortgage arrears can be paid through the plan, as well as other debts. This should permit the freeing up of enough cash flow to maintain your mortgage.

Some debts are non-dischargeable; student loans, spousal and child support, certain types of taxes, and criminal fines. These would also have to be paid in the plan, and any balance remaining would survive the bankruptcy.

Need Advice On Your Options?

The choice between a reverse mortgage and bankruptcy can be confusing. The answer requires a close look at your financial status and weighting the pros and cons of each option.

An experienced bankruptcy attorney can help you review your options, and help you determine which strategy best fits your unique personal situation.