HELOC discharged? Credit report says so!

[Bob Walker]

Hi everyone!

Last night I happened to run my credit report because it has been about a year since our BK was discharged and a few months since it was closed.

One item that stuck out like a black eye actually struck me with excitement! Our Home Equity Line of Credit "HELOC", on two credit reports, showed that our HELOC was discharged in the BK and were zero balances.

The creditor even up until last month was reporting it was zero balance, but what is odd is that they continue to ask for payments from us and have been even after we filed for BK and included it in our Ch 7 BK.

So my question is this: Can I send copies of the credit reports to the creditor and demand that they completely remove the HELOC and stop asking us for payments? And if they have been reporting a zero balance for almost a year am I entitled to a refund of all those payments I have sent them?

It would be so wonderful to be able to zeroize this HELOC as we had used our HELOC to open a business which went under due to medical reasons!

Thanks so much!

Bob

[justbroke]

If it was included in the bankruptcy (IIB), then they can't collect the debt. They can send you reminder notices of the balance, but that's usually futile.

So, was it included in your bankruptcy petition?

What generally happens, is that the lender/creditor sells the debt to someone else (a JDB). The JDB then doesn't know, or at least claims that it doesn't know, that the debt was discharged in a Bankruptcy. So the JDB will attempt to collect the debt.

You should just send a copy of the discharge and firmly notify the JDB that it is in violation of the discharge injunction and further attempts to collect this debt will be met with severe sanctions and monetary penalties.

If you did not include it on your Bankruptcy schedules, but you were a no-asset case, you can still send a copy of the discharge and follow the procedure in the preceding paragraph. If you are no-asset, technically all debt prior to the petition date are discharged, unless you reaffirm or redeem the debt.

At least, that's my read. I don't think it would hurt to follow the procedure above anyhow, and send the discharge to the creditor!!!

[HHM]

Two points of fact first:

1. A HELOC is a secured debt
2. Credit Reports are not legal documents.
Why are those facts important?

Secured debts create two types of liabilities, lien and personal liability. The lien creates the lenders right to repossess or foreclose the collateral that was pledged to secure debt (i.e. get the property back). A bankruptcy DOES NOT discharge a lien. The personal liability is the persons promise to repay the debt. The bankruptcy discharges the personal liability on the debt. Generally, in order to keep the pledged collateral after bankruptcy, you must continue to pay the debt.

The credit report in no way binds the creditor. The credit report is a list of your personal liabilities; so, strictly speaking, you did discharge your "personal liability" on the HELOC. But that does not mean the debt disappears. Moreover, you can never actually "remove" an account for your credit report (unless it was a fraudulent entry). Your credit report is your credit "history".

What does all this mean to you. You have two options.
1. Continue to pay the HELOC
2. Do not pay the HELOC and risk foreclosure
In today's real estate market, the risk of secondary mortgages foreclosing is very slim. But if you ever need to sell the home or refinance, the HELOC will become an issue because they will need to be paid to release their lien

[justbroke]

... and what HHM writes is the more important part that I glanced over. As to the debt, you may be discharged. As to the underlying lien... the lender still holds that lien and you risk foreclosure, however minimally.

[momxx5]

Obviously people are more knowlegdable than I am, but I am going to say that a credit report is not a legal document, thus it really can say anything and not neccessarily have all the facts right.

Just like many credit reports show errors.....showing credit lines open when they have been closes, showing late payments when there should be none, etc.; in this case the credit report is showing your equity line as zero balance and closed. Unless it was actually discharged, and you & your atty would definately know this, than you still owe this money. You mentioned that you are/were making payments...those payments were not hanging in limbo they were posting to your loan.

I would definately call your atty to discuss this before you send anything off to the equity line holder. Depending on your circumstances you make want your credit report corrected to reflect the actual account info.

Good luck and keep us posted.

[AngelinaCatHub]

I also believe that you reaffirmed the debt by simply paying on it. No you cannot get your money back. Just because a debt is dicharged, does not mean you do not owe the money. You do. It is only a break from the creditor to free you "not to sin again" so to speak in the "New Start". 'Hub

[keepmine]

I also believe that you reaffirmed the debt by simply paying on it.

To reaffirm, you must sign a reaffirmation agreement and it must be properly filed. Just paying is not reaffirmation. The code is pretty specific. You may repay anyone you please post bk.

[relief13035]

I would be one happy lady if I could get my HELOC to go away.

I'm in a different situation than most. I owe more on my HELOC than I do my 1st. I know...stupid stupid stupid. Without my HELOC, I actually have a great deal of equity. So I think if I stopped paying on my HELOC, they would want to foreclose right away because they would actually get some money back.

[laurannm]

I also believe that you reaffirmed the debt by simply paying on it. No you cannot get your money back. Just because a debt is dicharged, does not mean you do not owe the money. You do. It is only a break from the creditor to free you "not to sin again" so to speak in the "New Start". 'Hub

I believe this is incorrect. Technically speaking the OP does NOT owe the debt, as that is the personal liability that gets discharged (as HHM mentioned). Choosing to continue to pay the debt allows the debtor to retain the secured asset but does not mean they are reaffirming the debt. They can walk away at any point and be free and clear.

[HHM]

I believe this is incorrect. Technically speaking the OP does NOT owe the debt, as that is the personal liability that gets discharged (as HHM mentioned). Choosing to continue to pay the debt allows the debtor to retain the secured asset but does not mean they are reaffirming the debt. They can walk away at any point and be free and clear.

ding ding ding ding, correct.

[Bob Walker]

Liability removed?

OK, so it sounds like the personal liability is removed, but the lien remains.

What that sounds like to me is that I personally do not have to continue paying the bank the monthly payments, but they are still considered a secondary lienholder and can get the money if I ever sell the house or it is foreclosed on? Do I have this correct?

I also did NOT sign any reaffirmation agreement of any kind, I knew those things are traps!

As a Secondary Lienholder, it also sounds like the chances of foreclosure would be nill especially since we owe about as much on the house as it is worth if you combine the 1st and 2nd mortgage.

I would like to know more about this issue if someone would maybe like to contact me off board who has or is going through this very issue. I will make a call to my attorney on Monday about it though because obviously there are many people interested in this issue.

Thanks everyone so far for the help.

Bob

[HHM]

What that sounds like to me is that I personally do not have to continue paying the bank the monthly payments, but they are still considered a secondary lienholder and can get the money if I ever sell the house or it is foreclosed on? Do I have this correct?

That statement pretty much sums it up.

There really isn't much more to know about the issue.

[Bob Walker]

one more thing

Oh, one more thing to mention about this HELOC....

It is a 10 year Interest Only plan. So every payment that we have paid has been just the interest and none of it has really gone to the principal.

If we stop paying on the HELOC's interest, what happens? Does the loan amount stay fixed and they cannot even collect on the interest?

Does the loan amount just stay in limbo until the house is sold or foreclosed?

We could stay in the house for the next 30 years and never pay a penny on that HELOC until the house sells. We know we would get about $60k less as it would go to pay the HELOC off, but at least we wouldn't have to personally keep paying for it for the next 10+ years plus interest.

Thanks

Bob

[HHM]

You, personally, don't have to pay anything once the HELOC is dischaged, but the interest will continue to accrue, so if you go to sell or refinance in the future, the HELOC lender will be owed principle plus accrued interest.

[Bob Walker]

That's what I figured. Thanks.