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Can a Reverse Mortgage Be Garnished?

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Mark Cappel
UpdatedDec 6, 2022
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

Debt statistics

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Housing debt totaled $11.71 trillion and non-housing debt was $4.45 trillion.

According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Delaware credit card delinquency rate was 4%, and the median credit card debt was $365.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.

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2 Comments

BBill, Jul, 2010
No. A line of credit is not a checking or savings account -- it is a promise by a bank that you can borrow money from it in the future under certain terms and conditions. For the sake of argument, let us say a line of credit was subject to garnishment. You mentioned the judgment is against your LLC, a limited liability corporation. The LLC has the liability if it was a properly formed corporation that was funded adequately and operated according to the laws of the state of its incorporation. LLC shareholders and officers have no liability for judgments if, as I mentioned, the LLC was formed and operated properly.
JJustin, Jul, 2010
if i have a judgment against my LLC can they garnish money from a line of a credit i have with my bank