A Guide to Home Equity Loan Bankruptcy Discharge
Are you considering filing for bankruptcy but are unsure about how it will impact your home equity loan? You’re not alone. Many people who have taken out home equity loans wonder what will happen to this debt if they file for bankruptcy. This guide will provide you with everything you need to know about home equity loan bankruptcy discharge.
What is a Home Equity Loan?
A home equity loan is a type of loan that allows homeowners to borrow money against the equity they have built up in their home. Equity is the difference between the value of your home and the amount you owe on your mortgage. When you take out a home equity loan, you are essentially borrowing against this equity.
Home equity loans are often used to pay for home renovations, medical bills, or other large expenses. They can be a good option for homeowners who need access to cash but don’t want to sell their home or take out a personal loan with a higher interest rate.
What Happens to My Home Equity Loan if I File for Bankruptcy?
If you file for bankruptcy, your home equity loan will be treated differently depending on whether you file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as “liquidation” bankruptcy. In this type of bankruptcy, your non-exempt assets will be sold to pay off your creditors. Any remaining debt will be discharged, meaning you are no longer legally obligated to pay it back.
If you have a home equity loan when you file for Chapter 7 bankruptcy, it will be treated as unsecured debt. This means that it will be discharged along with your other unsecured debts, such as credit card debt or medical bills.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as “reorganization” bankruptcy. In this type of bankruptcy, you will create a repayment plan to pay back your creditors over a period of three to five years. After you complete the repayment plan, any remaining unsecured debt will be discharged.
If you have a home equity loan when you file for Chapter 13 bankruptcy, it will be treated as secured debt. This means that you will need to include your home equity loan in your repayment plan and continue making payments on it. However, if your home equity loan is greater than the equity in your home, it may be treated as unsecured debt and discharged at the end of the repayment plan.
Can I Keep My Home Equity Loan After Bankruptcy?
If you file for Chapter 7 bankruptcy, your home equity loan will be discharged along with your other unsecured debts. This means that you will no longer owe any money on the loan, and you will not be able to keep the loan.
If you file for Chapter 13 bankruptcy, you will need to continue making payments on your home equity loan as part of your repayment plan. Once you have completed the repayment plan, any remaining unsecured debt, including your home equity loan, will be discharged. However, if you fall behind on your home equity loan payments during the repayment plan, your lender may be able to foreclose on your home.
What Happens to My Home if My Home Equity Loan is Discharged?
If your home equity loan is discharged in bankruptcy, your lender will no longer have a lien on your home. This means that you will own your home free and clear, and you can sell it or refinance it without having to pay off the home equity loan.
However, it’s important to note that if you have taken out a home equity loan, your lender may have placed a lien on your home. This lien will need to be removed before you can sell or refinance your home. If your lender does not remove the lien, you may need to contact a bankruptcy attorney for assistance.
Table: Home Equity Loan Bankruptcy Discharge FAQ
Question |
Answer |
|---|---|
What is a home equity loan? |
A home equity loan is a type of loan that allows homeowners to borrow money against the equity in their home. |
What happens to my home equity loan if I file for bankruptcy? |
If you file for Chapter 7 bankruptcy, your home equity loan will be discharged along with your other unsecured debts. If you file for Chapter 13 bankruptcy, you will need to continue making payments on your home equity loan as part of your repayment plan. |
Can I keep my home equity loan after bankruptcy? |
If you file for Chapter 7 bankruptcy, your home equity loan will be discharged along with your other unsecured debts. If you file for Chapter 13 bankruptcy, you will need to continue making payments on your home equity loan as part of your repayment plan. |
What happens to my home if my home equity loan is discharged? |
Your lender will no longer have a lien on your home, meaning that you will own your home free and clear. |
Is it possible to keep my home equity loan and not have it discharged in bankruptcy? |
It is possible, but you will need to work with your lender and bankruptcy attorney to see if this is an option. |
What is the difference between secured and unsecured debt? |
Secured debt is debt that is backed by collateral, such as a home or car. Unsecured debt is not backed by collateral and includes things like credit card debt and medical bills. |
Can I file for bankruptcy without an attorney? |
It is possible to file for bankruptcy without an attorney, but it is not recommended. Bankruptcy can be a complicated process, and an attorney can help ensure that everything is filed correctly and that you are not missing any important steps. |
What is the difference between Chapter 7 and Chapter 13 bankruptcy? |
Chapter 7 bankruptcy is also known as “liquidation” bankruptcy, and Chapter 13 bankruptcy is also known as “reorganization” bankruptcy. The main difference between the two is how debt is discharged. |
How long does bankruptcy stay on my credit report? |
Bankruptcy can stay on your credit report for up to 10 years, depending on the type of bankruptcy you file. |
Will I be able to get a mortgage after bankruptcy? |
It is possible to get a mortgage after bankruptcy, but it may be more difficult and you may have to pay a higher interest rate. |
What is a home equity line of credit? |
A home equity line of credit is another type of loan that allows homeowners to borrow money against the equity in their home. Unlike a home equity loan, a home equity line of credit works more like a credit card, with a revolving line of credit that you can draw from as needed. |
Can a bankruptcy trustee take my home equity loan? |
If you file for Chapter 7 bankruptcy, the bankruptcy trustee may be able to sell your home to pay off your creditors. However, if your home equity loan is discharged as unsecured debt, the trustee will not be able to take it. |
What is the means test in bankruptcy? |
The means test is used to determine whether you qualify for Chapter 7 bankruptcy. It looks at your income and expenses to see if you have enough disposable income to pay back your creditors. If you do not pass the means test, you may need to file for Chapter 13 bankruptcy instead. |
Conclusion: Take Action Today
If you are considering filing for bankruptcy and have a home equity loan, it’s important to understand how this debt will be impacted. By filing for bankruptcy, you may be able to have your home equity loan discharged along with your other unsecured debts.
If you have questions or concerns about home equity loan bankruptcy discharge, it’s important to consult with a bankruptcy attorney who can provide you with guidance and advice tailored to your specific situation. Take action today and take control of your financial future.
Closing Disclaimer
This article is for informational purposes only and should not be construed as legal advice. If you have questions about home equity loan bankruptcy discharge or any other legal matter, it’s important to consult with a qualified attorney. The information contained in this article may not be applicable in your jurisdiction or to your specific situation. Always consult with an attorney before taking any action.