Unsecured HELOC & Ch. 7

[Medora]

Hi,
Our home has a $500K first, and a $157 2nd HELOC, actual value is probably around $450K now. So essentially the 2nd is unsecured. We're planning on filing Chapter 7 in the spring.
If our loan workout is unsuccessful, we can bring that unsecured HELOC into Ch. 7 with us, right? As long as we plan on giving the house back?

[Overmylimit]

I would say yes; however most HELOC's that I have ever heard of are secured by your residence. Even if the value is lower than what you owe it might still be secured. If it isn't yes it can be discharged.


I read your post again, if it is a 2nd on your home it is secured by your property.

[Medora]

Hi Overmylimit,
Hmmm... Well there's a discrepancy here. The house was originally collateral for the loan, but we're personally responsible. Meaning, if the property is not worth enough to pay it off, then the loan becomes unsecured and they can file a deficiency judgement against us personally. As opposed to the 1st Mortgage, which can only take the house no matter what it's worth and not come after us for any deficiency (at least in Cal.). Otherwise, we would have to wait until the foreclosure goes through, then wait for the deficiency judgement before including the debt in our BK? That just doesn't make sense... ?
Anyone else dealing with this issue right now??

[Overmylimit]

I'm not a Moderator on this site so you could be right, but I think you are saying two things at the same time. HELOC means Home Equity Line of Credit, so you use the equity in your home to secure the loan, if the value changes that doesn't mean the loan becomes unsecured.



Is the the HELOC unsecured or do you just think it is because the value has fallen?


I live in Ca and I have a 1st and 2nd also. My home is now worth 400k less than it was a year ago. My value is even less than the 1st alone. That being said the mortgage company who holds the 2nd position can foreclose on us if we don't make the payments. My HELOC is 177k, they can and will force the Foreclosure but might not simply because if the home goes on the sellers block the 1st position gets paid first.


If you are going to let the house go it won't matter too much in the end, but like me if you were staying the 2nd needs to be paid..unless..you are going Chp 13 then the 2nd can be stripped into an unsecured debt and wiped away.

[Medora]

Wow, I'm sorry about the value problems in your home. Seriously. This is such an awful situation for so many folks--not just sub-primes. It's astonishing to me how quickly the value turned around.

Because we are so upside down and do not have any equity in the home other than our remodeling expenses, we are probably going to surrender it. I just want to make sure that I can discharge the 2nd mortgage amount so they don't sue us.

I'm sorry for my confusing terms!

[Overmylimit]

I had major renovations and the home was worth a lot at one point, but then it fell fast in value. I was just a little confused at the post but that makes sense. From what I have read you give the home back and the 2nd could try to foreclose, but they would lose out to the 1st lien holder. In that case the 2nd would become like an unsecured debt (they wouldn't have much choice) and you could dismiss it thru BK.

[HHM]

If you can't do the loan workout (good luck, but being that upside down, I wouldn't count on it), and you do not intend to keep the home if you file BK, then all that debt is taken care of in the BK.

[TEW]

Hi,
Our home has a $500K first, and a $157 2nd HELOC, actual value is probably around $450K now. So essentially the 2nd is unsecured. We're planning on filing Chapter 7 in the spring.
If our loan workout is unsuccessful, we can bring that unsecured HELOC into Ch. 7 with us, right? As long as we plan on giving the house back?

Medora
I have the same thing and no just because the value of the house drops does NOT unsecure the loan. I think you are miss reading you paper work. If you default on the loan and they can not sell the house to cover what is owed then they are going to come to you for the rest. If you are filing BK that loan needs to be discharged with the first mortgage.
The only way you can strip that loan is in a chapter 13 but I have no idea how that works.
Good luck

[Medora]

Hi All,
Thanks for the advice, HHM. Barring any radically new legislation, we're prepared to surrender the home. Unless the first will take a small principal reduction and the 2nd will take a large one, there's no point. If there is pressure to make banks adjust loans to actual value, then we'd have a chance. It would make sense for them--properties are NOT moving in my neighborhood (even though it's a nice area). I doubt the 1st would net more than $400K all said and done and the 2nd will get zip. I'd be happy to stay and pay rent and take care of the place! But from what I'm hearing, that kind of "logic" isn't really affecting their decisions...yet.
So when we're ready to file, probably around April, we'll just surrender the house. How long after discharge do we have to vacate? Anyone experience this?

[mmenz22779]

if the value of your home is really 450 and you own 500 on it then you can do a chapter 13, strip the HELOC and what ever other unsecured debt you have and still keep the home.

if you are only upside down on the 1st by 50k, and you can afford to make the payments then strip that 157k down.

You cannot get rid of that HELOC in a chapter 7. It is either you get rid of the whole house or keep along with that HELOC.

Yes in a 13 you will have a payment plan, it depends on how much disposable income you have if it would be worth it.

[BROKENN]

Yes, if you are giving it back. The schedule moves any debt over the house value to the unsecured column.

But it doesn't matter, unsecured or secured, it all gets done in the BK.