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Can proceeds from a reverse mortgage be garnished, such as to pay off a debt?
Can proceeds from a reverse mortgage be garnished, such as to pay off a debt?
Wage garnishment is customarily defined as an employer diverting part of a debtor’s wages to pay a creditor for a debt.
A reverse mortgage is a line of credit on which regular withdrawals are made. Since it is a line of credit secured by the debtor’s real property, not a debt owed or property held by a third party, and there is no employer involved, I do not see a way for a creditor to use wage garnishment law to intercept payments from the reverse mortgage lender. It would be like applying a wage garnishment to the available credit line on your credit card. Therefore, I would argue monthly payouts from the reverse mortgage cannot be garnished.
Some reverse mortgages are paid out in lump sums, though, rather than as credit lines, so it would be easier to levy these funds if they are deposited into a bank account. If reverse mortgage payments are deposited into a bank account each month, they do not have any specific exemption and could be levied along with any other non-exempt funds in a bank account belonging to a judgment debtor.
I hasten to add I cannot find case law to support my opinion. I cannot find any case law where a creditor has garnished a disbursement from a reverse mortgage successfully, either.
This does not mean no creditor has ever garnished a reverse mortgage disbursement. Therefore, I urge you to consult with an attorney in your state who has experience in consumer law. He or she will research this issue in your jurisdiction and give you a more accurate answer.
To read more about collections, see my answer to another reader who needed Collections Advice.
I hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
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Dealing with debt
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Auto loan debt was $1.62 trillion and credit card was $1.12 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
The amount of debt and debt in collections vary by state. For example, in Indiana, 28% have any kind of debt in collections and the median debt in collections is $1721. Medical debt is common and 16% have that in collections. The median medical debt in collections is $748.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.
