default on heloc over 2 years ago, should i file bk?

[dasherkin]

I have a heloc that i defaulted on more then 2 years ago for 15000, last year i asked them to verify the debt, they did then sent me a letter asking me to get in contact to make a payment arrangement, i didn't, a month later they sued me, after getting sued, last month i received a letter from the court for them to garnish my income tax. I lose sleep over this debt now and to settle it would be better then winning the lottery to me, i feel more then stupid for not getting in contact with them way back when, now i plan on sending them a letter asking for a payment plan or a settlement. but im super nervous that they might not work with me and want all of the money.



my other option is to file bk or try to save the 15000 and not get in contact with them yet? or is it a good chance the will settle with me? please help thank you

[drowning123]

Dasherkin, how are your finances otherwise? Are you paying all your bills OK? Are you employed? Are you living from paycheck to paycheck? Bankruptcy should be an absolute last resort. Only after they've absolutely refused to work with you, then you should consider all options. If you were to file, would this be the only debt? It's seems so small compared to some of ours around here.

[tcreegan]

Hi dasherkin,

They are trying to collect this like an unsecured debt, which is curious b/c it should be secured by the property. What is the status of the 1st mortgage?

Garnishing your tax refund is pretty easy to combat, adjust your withholding to where you don't have a refund, maybe pay a little April 15th.

What they go after next is your wages. This is a problem unless you make so little that there is nothing left to garnish.

Before filing a BK, you need to look at the whole picture; 1st mortgage, cars/car loans, credit card balances, other debts, monthly income, expenses, even what state you live in makes a difference in a BK.

Folks on the forum can answer a lot of questions, the book from NOLO (www.nolo.com) is a great resource, and the best of all is a good, local attorney.

You might want to go over to the collections part of the forum, they would have some answers for the collection efforts on your HELOC

Hope you find the best path for your situation!

Tom in Colo

[dasherkin]

They are acting like it's unsecured which i thank god for, so i wanted to settle if i can or even get a payment agreement, but im so nervous to write them, i don't want to rock the boat. my first mortgage is with the same company and im current on that, no car loans i do have credit card debt but that's not my main concern my 100% main concern right now is this heloc i can work all the other stuff out

[tcreegan]

Hi again dasherkin,

How much equity in the 1st?

Tom in Colo

[dasherkin]

none, i live in detroit. my loan was 24,000 now its 21,000... it's so bad around here, my neighbour bought her house for 5,000 the highest sold on my block is 13000 and that sat for months

[dasherkin]

any ideas anyone? im thinking of maling tommorow, but im thinking i should let sleeping dogs lie

[daytona]

I'm not sure I understand how the Heloc has sued you for a deficiency without foreclosing? (although I don't know Michigan law) Since a home is collateral for a secured debt, the mortgage holder (bank) would typically have to foreclose 1st, sell the home, and then come after you for any "deficiency"...2nd mtg holders (Heloc) are very unlikely to do this if the home is underwater.

Something does not seem to add up here.

[dasherkin]

they sued me for the entire amount, my house has not foreclosed (thank god)

[tcreegan]

Hi again dasherkin,

You need a local attorney to find out how the 2nd became unsecured debt. As secured debt, they would have to foreclose to get paid.....BUT with no equity in the home they get exactly nothing...so they won't foreclose and will settle the debt for pennies on the dollar.

As unsecured debt they get a judgement against you and then can levy bank accounts, garnish tax returns, and/or garnish wages. Much worse.

So the essential question is 'how did the 2nd become unsecured debt?'

Tom in Colo

[newbie2]

In Michigan the 2nd lien holders are starting to sue for the unpaid loans, first claiming that the secured interest is lost (underwater homes, 2nd is deemed unsecured). They aren't foreclosing, but they are suing for payment. The contracts must be worded in a way that refers to their allowed course of action in addition to foreclosure.

[daytona]

Maybe they are sueing on the "Note" vs the "mortgage", michigan must be a "non-judicial" state. This gets interesting surrounding a potential BK filing...I am no expert on this, but perhaps the "one action" rule would mean that this loan is now unsecured, so could a BK wipe it out all together meaning no need to try to lien strip, etc...this could be great news if you plan to file a Ch7....

[dasherkin]

I really do think they are just trying to get the money for the heloc, and are not planning to foreclose, because the houses here are so underwater in detroit. i live on 8 mile, if you can imagine what it looks like over here, granted i do live in one of the nicer neighborhoods, but still in detroit still on 8 mile with the abandon homes etc. my home loan is for 21,000 plus 18000 for the heloc even though it is the same bank i don't think they would be able to even get the 21000. so im praying to god, they will let me settle for pennies on the dollar and get this out my life, thank you all so much your inputs so far

[tcreegan]

Hi all, thanks for the clarification newbie2, that would explain the unsecured collection status.....

The contracts must be worded in a way that refers to their allowed course of action in addition to foreclosure.

dasherkin, this something very relevant for you, get out your loan papers on the 2nd and go over them looking for the parts detailing what they can do in case of a default. Hopefully they are out of line and you can settle.

Just a thought, do you have someone in Detroit helping you with all this?

Tom in Colo

[dasherkin]

i don't, at first i was just ignoring it until i had the full money to pay it, but i can't take the anxiety anymore so im trying to tackle it. i sent them the letter, should i seek a lawyer to help me? or wait to hear back from them