Bankruptcy and Your HELOC: What to Consider
Have you taken a home equity line of credit (HELOC) from which you have drawn funding to pay for various costs? A HELOC is a type of revolving credit line that is secured by a person’s home. In order to obtain a HELOC, a bank determines the total equity in the home, and then a portion of the equity can be drawn by the homeowner through the HELOC. It functions as a credit card does — the borrower can draw from the HELOC for any purpose of their choosing, regardless of whether it is related to the home itself — and the interest rate is typically much lower than the interest rate associated with a credit card. With a HELOC, as the Consumer Financial Protection Bureau (CFPB) sums it up, you have “a line of credit, like a credit card, except you are borrowing against the equity of your home.”
If you have a HELOC and are considering bankruptcy, how will the bankruptcy impact your HELOC and, more importantly, your home ownership? Consider the following information from our South Florida bankruptcy lawyers.
Have You Drawn Funds Against Your HELOC?
If you have a HELOC but have not drawn any funds against it, your bankruptcy case is not likely to cause problems for your homeownership, but the bank will likely close your line of credit from your HELOC. You will not be able to draw funds from the HELOC once you file for bankruptcy.
If you have already drawn funds from the HELOC, the impact of a bankruptcy filing will depend on whether you want to keep your home, as well as on the type of bankruptcy you are filing for.
Do You Want to Keep Your Home?
If you want to keep your home, you cannot have your HELOC balance discharged in a bankruptcy case. While this type of debt is often dischargeable in a bankruptcy filing, having it discharged will result in you losing your home.
What Type of Bankruptcy Are You Considering?
If you are planning to file for a liquidation bankruptcy under Chapter 7, the above will be a particular issue. If, however, you are planning to file for Chapter 13 bankruptcy, you may be able to catch up on the HELOC payments you owe to the bank while keeping your home. You should discuss the specifics in more detail with your bankruptcy attorney.
Contact Our West Palm Beach Bankruptcy Attorneys Today for Assistance With Your Bankruptcy Case and Outstanding Debts You Owe
If you currently have a HELOC from which you have drawn significant credit, or a home equity loan, and you are planning to file for consumer bankruptcy in South Florida, it is essential to learn more about how your HELOC credit or your home equity loan will be treated in your bankruptcy case. As we discussed above, this will depend in part on how much you owe, as well as the type of bankruptcy that you are planning to file for — usually either Chapter 7 or Chapter 13 for an individual. To have your questions answered or to begin planning for your bankruptcy case, you should get in touch with an experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan Delaney & Eller, PLLC. Contact our firm today to learn more about how we can assist you with your personal bankruptcy filing and the status of any debts you currently owe.
Sources:
law.cornell.edu/uscode/text/11
consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-home-equity-loan-and-a-home-equity-line-of-credit-heloc-en-247/
