Tag Archives: HELOC

What Happens to a HELOC in Bankruptcy?

A Home Equity Line of Credit is a secured loan that acts like an unsecured credit card. Many people took out these “second mortgages” on their homes as a way to convert the home equity into cash while staying in the residence.

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What happens to your HELOC mainly depends on the Chapter you file.

HELOC in Chapter 7

In a Chapter 7, the discharge order extinguishes your liability on the note, but the lien against the property stays in place. In other words, you have no personal liability to repay the debt, but the bank can foreclose on your house for defaulting on the note once the automatic stay expires. Strip-off may be an option in the Middle District of Florida: if there is not enough value in the home to secure the second lien, the court may remove both the lien and your personal liability in some cases.

Realistically speaking, foreclosure is unlikely for a junior mortgage, such as a HELOC. The proceeds from the sale go to pay the first mortgage, and then if there is anything left, a junior mortgage is paid. There is usually nothing left, especially if you have little equity or even negative equity in the home.

This situation reinforces the idea that Chapter 7 is an excellent option for homeowners who are either current on their mortgages or do not wish to remain in their homes.

HELOC in Chapter 13

Like most other debts, a HELOC can be included in your repayment plan. For example, if you are $1,800 behind on your payments and your repayment plan is 36 months, you could expect to pay about $50 per month towards the HELOC. If the line of credit was a junior lien and was entirely unsecured, you may be able to strip off the loan, just as in a Chapter 7.

The creditor must accept your repayment plan, assuming that the judge approves it. Furthermore, because of the automatic stay, the moneylender cannot foreclose on the lien or make any contact with you regarding the past-due amount through the entire repayment period, without getting special permission from the court.

Contact us for a free consultation with attorneys who can help you get back in control.

Contact a Brevard County Bankruptcy Attorney at Faro & Crowder, PA

If you are interested in learning more about how a bankruptcy filing will impact your debt, contact Faro Crowder, PA to schedule an appointment.

Our office is conveniently located on Sarno Road in Melbourne.  We offer free initial consultations for bankruptcy and foreclosure defense.

Speak with an experienced Bankruptcy Attorney at Faro & Crowder, PA 321-784-8158

We offer a free initial consult for bankruptcy, debt relief, credit card debt and foreclosure defense.  Contact our office to schedule your consultation and discuss your debt relief options.

    Faro & Crowder, PA
    Phone: 321-784-8158
    1801 N. Sarno Road, Suite 01
    Melbourne, FL 32935
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    We are a debt relief agency. We help people file for bankruptcy under the bankruptcy code.

    Are HELOCS Dischargeable in Bankruptcy?

    Home equity is exempt in Florida, although the amount of the exemption may be a matter of time. If you have a Home Equity Line of Credit, the actual debt may be wiped out but not the lien on your property

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    What is a HELOC?

    Many people refer to a HELOC as a “home equity loan.” But, strictly speaking, a HELOC is not a loan. A HELOC is more like a secured credit card: the bank agrees to extend a predetermined line of credit and, if you default on the payments, the bank may foreclose on the lien you gave the bank.

    Chapter 7 Bankruptcy

    A Chapter 7 Bankruptcy discharges the debt, but does not erase the lien. So, you have no personal liability to repay the note, but the bank can take your house if you default on the payments.

    What’s the difference? Assume there is a deficiency, because you are underwater (your mortgage balance exceeds the fair market value of your home). Because the bankruptcy discharged the underlying debt, the bank may not sue you for the deficient amount.

    Chapter 13 Bankruptcy

    You may not have to repay the entire HELOC balance in a Chapter 13. If you are underwater on the mortgage, the court may allow you to strip-off all or part of the amount.

    If you must repay the entire amount, which is likely, you can set the payments yourself in the Chapter 13 plan. As long as the trustee finds that the plan is reasonable, you can pay back the HELOC in equal monthly installments through the plan period, as opposed to the lump-sum payment that the moneylender is probably demanding.

    For more information about what debts are dischargeable in bankruptcy, contact us for your free consultation.

    Contact a Brevard County Bankruptcy Attorney at Faro & Crowder, PA

    If you are interested in learning more about how a bankruptcy filing will impact your debt, contact Faro Crowder, PA to schedule an appointment. We are located in Melbourne, Florida on Sarno Road and serve residents and businesses of the Space Coast and Brevard County.

    Services Areas

    We provide services throughout Central Florida including: Melbourne, Titusville, Palm Bay, Merritt Island, Cocoa, Cocoa Beach, Satellite Beach, West Melbourne, Cape Canaveral, Viera and Eau Gallie.

    Get In Touch with Faro & Crowder, PA

    Faro & Crowder, PA
    Phone: 321-784-8158
    1801 N. Sarno Road, Suite 01
    Melbourne, FL 32935

      Contact Us For A Free Consultation

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