Can I pay off my mortgage while in Chapter 7?

Q: I am in Chapter 7 bankruptcy. I paid the trustee some money and it is being distributed to my creditors. The case will be open for several more months. In the meantime, I have reached the age of 62 1/2 and I am going to cash out my pension, roll most of it over to a 401K and use the remainder to pay off my mortgage. My mortgage lender has agreed to very reasonable amount of money. Can I go ahead the do this deal while my bankruptcy is still pending? Do I need the court’s permission?

A: Generally, it is not a good idea to withdraw money from your pension to pay off a mortgage, especially while in Chapter 7. u would almost certainly be converting an exempt asset to a non-exempt asset, which may cause significant problems and even loss of property. You should wait and be sure to discuss any such plans with your bankruptcy attorney.


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