If you’re over 62, own your home, and are currently in Chapter 13 bankruptcy, you might be considering a reverse mortgage to access the equity in your home. A reverse mortgage allows homeowners to convert part of their home equity into cash without monthly mortgage payments. The money can be used to cover expenses, manage debts, or even pay off your Chapter 13 repayment plan.
However, because Chapter 13 is a court-supervised repayment plan, taking on any new debt, including a reverse mortgage, requires approval from the bankruptcy court. This involves filing a formal request called a Motion to Incur Debt, working with your Chapter 13 trustee, and meeting the lender’s requirements. It’s a complicated process, and approval is not automatic.
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Why Is It So Complicated to Get a Reverse Mortgage if I’m in Chapter 13?
A reverse mortgage is a loan for homeowners aged 62 or older that allows them to convert part of their home equity into cash. Instead of making monthly payments to a lender, the lender pays the homeowner, and the loan is typically repaid when the home is sold, the homeowner moves out permanently, or passes away.
Chapter 13 bankruptcy is a court-monitored repayment plan, usually lasting three to five years, that helps individuals reorganize their debts and make manageable payments while receiving protection from creditors.
The difficulty arises because a reverse mortgage is considered new debt, and under Chapter 13, any new debt must be approved by the bankruptcy court. This rule exists to ensure the repayment plan remains fair and feasible for both the debtor and the creditors. Since a reverse mortgage is a loan against home equity, the court must evaluate whether taking on this new obligation aligns with the goals and terms of the repayment plan.
That approval process isn’t automatic. It involves your attorney, your trustee, the lender, and the court. These all make sure the new loan won’t derail your bankruptcy plan. That’s why, even though it’s technically possible, getting a reverse mortgage while in Chapter 13 is a complex and often slow process.
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What Is Exact Process for Getting Court Approval?
If you’re in Chapter 13 bankruptcy and want a reverse mortgage, you can’t just call a lender and sign papers. You must get permission from the bankruptcy court first. Here’s the full process.
1. File a Motion to Incur Debt
You start by filing a “Motion to Incur Debt” with the bankruptcy court. This is a legal request asking for permission to take on the reverse mortgage. Your motion must explain:
- The exact amount you want to borrow.
- How do you plan to use the funds.
- Why is the loan necessary.
- How will it affect your Chapter 13 repayment plan.
You’ll work with your bankruptcy attorney to prepare this motion so it addresses both the court’s and the trustee’s concerns.
2. Trustee Review
Once filed, your Chapter 13 trustee reviews the motion. Their job is to protect your creditors and make sure you can still finish your repayment plan. They will look at:
- Whether the reverse mortgage is reasonable and necessary.
- If the new loan payments (or impact on equity) will interfere with your monthly plan payments.
- Whether creditors’ rights are still protected.
If they believe the reverse mortgage could harm your case, they can recommend denial.
3. Court Decision
After the trustee review, the judge makes the final call. The bankruptcy judge will weigh your need for the reverse mortgage against the potential risks to your Chapter 13 plan. The judge may ask for more documents, question your attorney, or set a hearing.
Approval only happens if the court believes the loan benefits you and doesn’t threaten your ability to complete the plan. If denied, you cannot proceed with the reverse mortgage.
4. Move Forward With Lender
Only after approval can you move forward with the reverse mortgage application. The lender will still run their own review, including an appraisal and eligibility check under FHA HECM or proprietary reverse mortgage rules.
This process can take weeks or even months, and it requires cooperation between you, your attorney, your trustee, the court, and the lender.
Will a Reverse Mortgage Interfere With Your Chapter 13 Repayment Plan?
A reverse mortgage can either help or hurt your Chapter 13 bankruptcy—and the outcome depends on how you use the money and how it affects your payments. Both the bankruptcy court and your Chapter 13 trustee will study the details before making a decision.
If you use the reverse mortgage funds to pay off your repayment plan in a lump sum, that’s usually a positive. It can shorten your case, stop your monthly plan payments, and satisfy your creditors early. The court often views this as a win if you clearly show it’s your intention and have a plan for how the funds will be applied.
If you plan to use the money for living expenses, home repairs, or other personal needs, the court will ask:
- Will this spending still allow you to make your plan payments on time?
- Does the reverse mortgage reduce your available home equity in a way that harms creditors’ interests?
- Will the loan’s fees, interest, mortgage insurance premiums, and closing costs put more pressure on your budget?
If the numbers show that the new costs could make it harder to keep up with your Chapter 13 plan, the court will likely reject the request.
The trustee and court have the same objective: to ensure you finish your repayment plan without setbacks. You’ll need to prove that the reverse mortgage either speeds up your payoff or at least doesn’t weaken your financial position. If you can’t do that, the court will see the loan as a threat to your case, and deny it.
Can a Reverse Mortgage Help You Get Out of Chapter 13 Early?
Yes, if you use the reverse mortgage funds to pay off your Chapter 13 repayment plan in full. Paying the plan in one lump sum can lead to an early discharge. That means your bankruptcy ends sooner, your monthly plan payments stop, and your creditors are paid off ahead of schedule. Courts and trustees often view this positively because it closes the case faster and satisfies creditor claims.
A reverse mortgage can also help by freeing up cash flow. You receive funds without a monthly repayment obligation like a traditional mortgage. This can make it easier to cover other expenses while you’re still in bankruptcy. But remember, you need court approval before moving forward. The court must confirm the loan won’t make your plan harder to complete.
What Are the Biggest Risks and Other Options?
A reverse mortgage can be a tool to help you finish your Chapter 13 bankruptcy early—but it’s not without risks. Both the bankruptcy court and the lender have the power to block the deal, and the loan itself can have long-term effects on your finances. Before you file your Motion to Incur Debt, you need to weigh these factors carefully.
Biggest Risks
- Court rejection – Even if you believe the reverse mortgage will help, the judge may decide it harms your creditors or threatens your ability to finish the plan. Without court approval, the loan cannot move forward.
- Lender requirements – Many lenders hesitate to approve reverse mortgages during an active Chapter 13 case. Those willing to consider it may require a history of on-time plan payments or proof of stable income.
- Loss of home equity – A reverse mortgage draws against the value of your home. Over time, interest, fees, and mortgage insurance increase the loan balance. That means less equity is left for future needs, inheritance, or downsizing.
Other Options If a Reverse Mortgage Isn’t Right
If the court denies your request, or you decide a reverse mortgage isn’t the best fit—you still have alternatives:
- Traditional refinancing – If you qualify, this can lower your payments or give you a lump sum of cash. However, lenders will still factor in your bankruptcy status.
- Home equity line of credit (HELOC) – A revolving line of credit lets you borrow only what you need. Approval during bankruptcy is rare but not impossible with certain lenders.
- Chapter 13 plan modification – You can ask the court to change your payment amount or extend your plan, giving you more breathing room without taking on new debt.
Each option comes with its own eligibility requirements, costs, and risks. Talking to your bankruptcy attorney and a qualified financial advisor is essential before making a decision.
Conclusion
You can get a reverse mortgage while in Chapter 13 bankruptcy, but it’s not easy. You’ll need court approval, cooperation from your trustee, and a lender willing to work with someone in active bankruptcy. Every step must fit within your repayment plan and protect your creditor’s interests.
The process takes time, paperwork, and careful planning. It can help you finish your plan early or free up cash flow, but it can also be denied if the court or lender sees too much risk.
Before you move forward, talk to your bankruptcy attorney and meet with a HUD-approved reverse mortgage counselor. They can help you understand your eligibility, run the numbers, and decide if this path makes sense for your situation.