A South Carolina Bankruptcy court decision by the Honorable John E. Waites, Chief Bankruptcy Judge, found the entire balance of a reverse mortgage could be paid off over the five year life of a chapter 13 plan according to Law Bankruptcy Network.

In the case of Brown, 2010 WL 1903771, the debtor and her daughter had lived in the home belonging to the debtor’s mother for forty years. In 2007, the debtor’s mother died, leaving the home to the debtor. The home was subject to a reverse mortgage upon which $29,524.44 was due and payable immediately upon the mother’s death.

Upon learning of the mother’s death, the reverse mortgage was called by Financial Freedom and foreclosure proceedings began.  Two years later, The debtor (Daughter) then filed chapter 13, proposing in her plan that the $29,524.44 would be paid over five years, with interest at 5.25 percent and payments of $561.00 per month instead of Financial Freedom foreclosing.

Financial Freedom objected to the plan, asserting its treatment under the plan is impermissible because the debtor is unable to cure the default under 11 U.S.C. § 1322(b)(5), the plan has been proposed in bad faith and is not feasible.  Both parties estimate the home is worth around $70,000, so there is clearly enough equity in the home to pay for her mothers mortgage balance.

However, the bankruptcy court overruled Financial Freedom’s objections to the chapter 13 plan and denied the motion it be allowed to proceed with foreclosure.  According to court documents, the Judge found the plan was proposed in good faith and that a reverse mortgage which came due before the filing of a chapter 13 bankruptcy could be paid over the five year life of the plan.

Court documents state that section 1322(c)(2) of the bankruptcy code allows the payment over five years of any mortgage upon which the last payment came due prior to the date of the last chapter 13 plan payment. This section allowed the debtor to modify the terms of the reverse mortgage, extending it over five years.