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(Resolved) Can A Home Equity Line Of Credit Be Discharged In Chapter 7?

Your HELOC lender is unlikely to foreclose on the property if they are not expected to get a significant amount of money after the foreclosure sale 🤓 The HELOC mortgage is usually the second mortgage. This means that the proceeds of the foreclosure would be used to first pay the senior mortgage lender. The HELOC lender is unlikely to proceed with foreclosure if there are no funds left after paying the mortgage and deducting foreclosure costs. It may give you some time to make an agreement with the lender. You might also be able refinance or extend your existing mortgage. This is often possible a few decades after filing for bankruptcy.😊 [1]
Chapter 7 bankruptcy allows you to petition the bankruptcy court for protection from creditors. The bankruptcy court will then discharge any eligible debts. Nonexempt property is property the court trustee can sell to help repay creditors. You are required to give up any nonexempt property. Certain debts, like federal or state taxes, can be preserved under bankruptcy law. Child support Student loans that are federally guaranteed. You can get loans secured by your home, such as a loan to pay off a mortgage or to increase the value of your house. Line of creditCan be discharged. But bankruptcy doesn’t release the lender’s lien. The lender can foreclose on the house if the loan is not paid. Credit to Rush Cordero for pointing out this. [2]
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The short answer as to whether you can discharge a HELOC during Chapter 7 bankruptcy is “no.” At least not if you want to keep your house. You liquidate all your unsecured assets during Chapter 7. Your creditors receive any proceeds from the sale. Although they might not receive full payment, your creditors are still paid with the proceeds of the sale. Severe enough that you aren’t required to pay You owe everything. If you would like to retain your house, however, you will need to continue making HELOC payment. Your home can be kept as long you keep up with the current HELOC payments. [3]
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As it’s written, a chapter 7 bankruptcy filing HELOC debts will not cause foreclosure. But things don’t always work they way they were designed to, and chapter 7 bankruptcy is no exception. HELOCs are almost always used as second mortgages. This means that the principal mortgage lender will receive the majority of the foreclosure proceeds, with little going to HELOC lenders. In situations where the second lender has little to gain from a foreclosure, it’s unlikely for them to force the process, and are much more likely to be willing to work out a deal with the debtor, such a refinancing the mortgage. (We thank Keshawn Kinesy for telling us). [4]
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Refer to the Article

  1. https://www.alllaw.com/articles/nolo/bankruptcy/heloc-bankruptcy.html
  2. https://legalbeagle.com/12722392-what-happens-when-a-bank-charges-off-your-heloc-after-a-chapter-7-discharge.html
  3. https://wallethub.com/answers/hl/can-a-heloc-be-discharged-in-bankruptcy-232/
  4. https://www.steerslawfirm.com/bankruptcy-affect-home-equity-line-credit/
Mehreen Alberts

Written by Mehreen Alberts

I'm a creative writer who has found the love of writing once more. I've been writing since I was five years old and it's what I want to do for the rest of my life. From topics that are close to my heart to everything else imaginable!

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