Will HELOC get closed after Chapter 7 filing?

[ld2366eh]

My mother in law is filing Chapter 7 soon. Will her HELOC be closed after she files? She owes about $90K, and the value is around $134K (generous). No first mortgage, just the HELOC. She is scraping for cash and is trying to get the appraisal lowered (we think she could get $110K on a good day due to all the repairs that need to be made to the house). Will she still have access to her HELOC after she files or will it be closed? She lives in PA and doesn't want to sell her house, but really can't afford it for much longer.

Thanks in advance!

[BobMango]

The HELOC will definitely get closed. I was in a similar situation, only had a HELOC and they basically locked it at the balance when I filed. I believe PA does not have a homestead exemption so your mother will need to use the Federal exemptions to protect the property, but even at the lower value you estimated it will be a stretch since the Federal is just under $23K. Bottom line is that she really needs to see an attorney to explore options. Good luck.

[ld2366eh]

Thank you for your quick reply! Yes, she already has an attorney. He had her have a contractor come out to the house, and the contractor estimated $25K in repairs. Now her attorney wants her to go back and see if the appraiser will lower the appraisal from the $134K amount. We'll see. The whole thing is complicated and scary for her.

[bcohen]

It depends what you mean by "closed". Upon filing for Chapter 7, the HELOC will be frozen and no longer available to make new purchases/cash advances, and the lien against the house will not be released as a result of the bankruptcy. However, the HELOC lender is not permitted to default the loan merely because of a bankruptcy filing, demand payment in full, and refuse normal payments. Thus, she will be able to continue to pay the monthly payments and live there, even though the debt will be discharged as to her personally. If at some point it ceases to be cost-effective to pay the HELOC, she can stop paying, live there until the bank forecloses, and then move out and rent.

If your MIL is still current on the HELOC, and still has credit available, it would probably be in her interest to use it to fix up her house, unless it is her plan to surrender it and move. Otherwise, after filing, she will still have to pay the HELOC in order to keep the house, and may not be able to come up with the money for necessary repairs to keep the house livable.