Home Equity Loans Chapter 13
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Home Equity Loans Chapter 13

If you've decided to file for Chapter 13 bankruptcy, you're probably wondering what might happen to various types of debts, including home equity loans. Chapter 13 bankruptcy provides a number of protections for filers, and needed financial relief for many Americans.

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What Happens to Home Equity Loans in Chapter 13 Bankruptcy?

Understanding how the bankruptcy court might treat your various debts is an essential part of making the decision of whether or not to file for bankruptcy. Here's a breakdown of the factors that contribute to how a home equity loan is handled in Chapter 13 bankruptcy.

  • The court prioritizes debts. When you file a Chapter 13 case, you agree to a repayment plan for your high-priority debts in exchange for a potential discharge of low-priority debts. The bankruptcy court ranks secured debts (those attached to property) above unsecured debts (those unattached to property), so you'll have to repay secured debts first.
  • You list all your debts and income. When you file your case, you'll include all of your financial assets and obligations to help the court determine what and how much you must pay.
  • Your mortgage is a secured debt. Because it is attached to your house, your mortgage is a high-priority secured debt and you will either have to make up any missed payments and keep up on current payments or give up your house.
  • Your home equity loan may be unsecured. If your property's value has declined, then there's a chance that your primary mortgage is secured by the entire value of your home. In other words, even though you've paid some of your mortgage off, the drop in the home's value means that the remaining debt is now equal to or greater than the house's current value.
  • The court may "strip off" the home equity loan. If your home's value has dropped far enough to make your home equity loan unsecured, the bankruptcy court may do what's called "stripping off" the home equity loan from your house, making it low-priority unsecured debt that you may not have to repay as part of your repayment plan.

Underwater Loans and Chapter 13 Bankruptcy

If you have a home equity loan and your mortgage is currently "underwater" (meaning you owe more on your first mortgage than the house's value), you might be a good candidate to have your home equity loan discharged in a Chapter 13 bankruptcy filing.

A local attorney can help you explore this option.

Learn More about Home Equity Loans in Chapter 13 from a Lawyer

If you're ready to learn more about your specific financial situation, you can take advantage of this opportunity to connect with a bankruptcy lawyer practicing near you.

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