During the boom, many homeowners took out home equity lines of credit (HELOC) and are now struggling to repay those loans plus their mortgage. Can a debtor discharge their HELOC in Chapter 7 bankruptcy and keep their home? The short answer is no. A debtor can discharge the home equity loan in Chapter 7 bankruptcy but they cannot discharge it AND keep their home. However, if a debtor would like to keep their home, they may be able to file Chapter 13 bankruptcy and repay both their HELOC and their mortgage over a 3 to 5 year period. If, after completing your Chapter 13 bankruptcy repayment plan, there is a balance on your HELOC loan that may be discharged, effectively reducing the amount you pay out to the lender.
For example, if you had a $100, 000 mortgage with a $20,000 HELOC in Chapter 13 bankruptcy you may end up only paying $12,000 on the HELOC and the balance being discharge in bankruptcy. But remember, in Chapter 13 bankruptcy, you will repay on all of your creditors, including credit cards. Also, your Chapter 13 bankruptcy repayment amount will be determined by your income and ability to pay. If your income increases during your Chapter 13 bankruptcy that increase must be reported to the bankruptcy trustee and it may impact how much you pay to your creditors. However, in a Chapter 7 bankruptcy, if you have a HELOC you will need to repay it only if you want to keep your home or you can discharge it and your mortgage loan and surrender the home to the lender. It’s important for each debtor to carefully weigh the feasibility of keeping their home. Ask yourself…can I really afford to keep this home? If you do not earn enough income and attempt to keep your home during bankruptcy, you could possibly face foreclosure after your bankruptcy and end up in a bad financial situation again.
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