HELOC post Ch7

[gamama]

Hi,
We filed Ch7 in 2011 that included a HELOC with a credit union

We have not paid towards that HELOC since closing out our BK. I am now considering a refi for the 1st & 2nd. I contacted the credit union to find out what would be needed to release the lien for a refi. They told me the HELOC is closed, but they still have a lien on the house. The HELOC is not accruing interest or fees.

Question - If I don't refinance, this HELOC will stay as a Lien - what is my risk?

I'm in a dilemma here - I don't really want to refinance because I have 12 years left to pay off the 1st. What would happen to that HELOC when I pay off the

I plan to stay in this house indefinitely at this point.

Thanks

[justbroke]

The risk is that the HELOC will be a lien against the home until it's sold. You could also have difficult refinancing without either subordinating the HELOC (with the credit union's blessing), or refinancing all the liens (1st, 2nd and HELOC).

Additionally, there is no way for me to tell "why" the HELOC isn't incurring interest! There is likely no reason why the CU could just lay dormant on their lien, and then when you go to sell or refinance, then recalculate all the accrued interest. The bankruptcy only discharged your personal liability and not the lien (as you know). If the promissory note allows interest accrual, then the accrual can continue. Whether or not the CU cares about eh missed interest or whether they'll stay quiet about their lien is the unknown.

Some people have tried to negotiate and payoff subordinate liens after bankruptcy using a settlement strategy. The strategies have included offering as little as 5-10% to see if the lender would settle on the lien. Remember, nothing is stopping them from selling that lien to a bottom-feeder... err... junk debt buyer (JDB) so they can get from under it. The JDB could then pressure you -- not personally but what they call "in rem" (against the property) -- to try to squeeze out some $$$.