This continues the series of our blogs about special legal and practical considerations for older Oregonians. In our last blog we covered the first three considerations about assets: 1) the greater need for seniors to protect assets, 2) Chapter 13 as one way of protecting assets, and 3) asset protection planning before or instead of filing bankruptcy.
In today’s blog we cover 4) protecting retirement accounts, 5) the special situation of retirement money in your personal account, and 6) reverse mortgages.
Special Asset Considerations—
4) Extra Focus on Retirement and Similar Assets:
If part of your income, today or in the near future, is from a retirement fund, you of course want to be sure that this fund is not at risk of being taken by your creditors either outside or inside bankruptcy. Most types of retirement are exempt and fully protected, but you need to make sure because there are certain kinds that are not.
Plus seemingly unimportant events like a “rollover” of your retirement funds could be very important. Some types of retirement are protected regardless of amount while others have caps. Some of this may depend on federal law and some on Oregon law. And the laws change.
You’ve heard it before—be sure to get legal advice about this. Even if there’s only a small risk that the source of your lifetime future income could be grabbed by your creditors, wouldn’t you want to know one way or the other?
5) Exemption for Money in Accounts from Social Security
One special situation about Social Security or other retirement assets is worth focusing on: does money from such protected sources continue to be protected after it’s been deposited into your account? And what if anything do you need to do to keep such funds protected?
Oregon allows 100% of some types of funds to be “exempt,” or protected, while in your account, but caps others at $7,500. (See Oregon Revised Statutes 18.348.) Social Security and most retirement accounts are all exempt, as long as the exempt portion of the funds “are reasonably identifiable” in the account. It’s safest not to deposit money from any other sources into an otherwise exempt account to keep everything in the account protected.
But watch out: even money sitting in an account that is otherwise fully exempt—even Social Security—can likely be taken from you by the financial institution at which you hold your account, if you owe anything to that institution. This is called a setoff right, and applies if you signed anything that gives the financial institution that right. Most likely you signed something when you started the account that had a setoff clause buried in the fine print. So if you have any debts owed to the bank or other financial institution where you have your account, you should either move the account elsewhere, or file bankruptcy before you fall behind on any debts owed to that financial institution.
6) Special Issues from Reverse Mortgages
A “reverse mortgage” is a loan against your home that you don’t have to pay back as long as you live in that home. It can allow you to turn your home equity into cash—often through monthly payments to you–without you needing to move or make monthly payments.
If you are considering getting a reverse mortgage to deal with your financial situation, be sure to get legal advice before doing so. It’s a very important decision. You need to be very clear about what your goals are for entering into a reverse mortgage. You need to find out whether those goals are better achieved some other way, including by instead filing a bankruptcy case.
Assuming you already have a reverse mortgage, here are some important considerations if you’re considering filing bankruptcy:
- Homestead exemption: As with any other kind of mortgage, the remaining equity in your home is still considered your asset and needs to be protected from creditors through the homestead exemption.
- Due date of the loan: Usually a reverse mortgage loan is not due for repayment until you no longer occupy your home. However, the fine print may reveal certain conditions in which the full debt on the loan becomes due if the borrower files for bankruptcy. Make sure your attorney reviews the reverse mortgage documents to make sure this does not apply to yours.
- Any ongoing credit line: Also be aware that the terms of your reverse mortgage may provide that the remaining credit line (if any) will be closed upon filing bankruptcy. So be sure your attorney checks this out as well. However, if you do have an unused line of credit, it’s not an asset in the bankruptcy. So it can’t be taken by the trustee for the benefit of your other creditors.
- In certain unusual situations (such as if the homestead exemption only barely covers your equity in the home, or definitely doesn’t), a bankruptcy trustee might tell your lender to stop disbursing money to you because those payments are reducing the equity in the property which arguably belongs to your other creditors.
Clearly, reverse mortgages do create some important issues that need attention. Often these do not cause a problem, but you want to make sure where you stand beforehand.