If you’re filing for bankruptcy and have a home equity line of credit (HELOC) there are a few things you’ll need to know about how your loan may be handled.
If you decide to keep your home and file bankruptcy, you will need to repay your HELOC because it is a secured loan. Since your HELOC is attached to the house, keeping the property means you’ll need to repay the HELOC after your bankruptcy discharge.
If you decide to return your home to the lender, your HELOC may be wiped out in bankruptcy. This means that, because you surrendered the home to the lender, you may not be responsible for paying the home equity line of credit.
Chapter 13 bankruptcy
Filing Chapter 13 bankruptcy will require you to repay your debts over a three to five year period. However, some of your secured debts such as your HELOC may be discharged under certain circumstances. For example, if your home’s value is less than your HELOC, you may be allowed to strip the loan and treat it as an unsecured debt. This means that the HELOC will be treated like any other unsecured debt such as credit cards. You’ll repay those debts according to your Chapter 13 bankruptcy repayment plan over a three to five year period; any unsecured debts that are not paid after that time passes will be discharged.
How your home equity line of credit is treated in bankruptcy may depend under which chapter you file and whether or not you want to keep your home. Talk to your bankruptcy attorney to find out how the particulars of your circumstance will impact your home equity line of credit in bankruptcy.