I’ll give you the short version up front and the explanation below.
You can do it in a Chapter 13 if the value of the collateral (your house) is worth less than the amount you owe on the first mortgage. If there is any equity at all that could go toward payment of the Home Equity Loan, then the answer is “no” you cannot eliminate the Home Equity Loan in a Chapter 13 bankruptcy.
When you have a home equity line of credit that you can’t afford, bankruptcy can help you get rid of it. But can you file bankruptcy without losing your home?
Bankruptcy is defined by the law in many different ways. Chapter 7 is total debt liquidation. Chapter 13 is sometimes a combination of debt reduction and debt management. Even though filers exit both forms of bankruptcy, debt free, they aren’t the same when it comes to keeping your home while ridding yourself of debt you can’t afford.
In Chapter 7 bankruptcy, you can’t rid yourself of debt while keeping the asset you are in debt for. In Chapter 7, exempt, secured assets like homes, cars, or other property may be kept as long as you continue to pay for them. If you choose to stop paying or can’t afford to keep paying, the asset is returned to the lien holder.
However in Chapter 13 bankruptcy, you can continue paying on your first mortgage and “strip” the 2nd mortgage an make the 2nd mortgage become an unsecured creditor if the value of the collateral is less than the amount owed on the first mortgage. The bankruptcy law requires that the second mortgage be “wholly” unsecured.
Over the past 32 years, the Law Offices of Christopher A. Benson has helped over 2,300 of Washington clients take control of their financial situation. We can stop your garnishment and change your monthly payments for all your combined unsecured debt, and if you have had more than $600 garnished within the last 90 days, we can get all of the money back in most cases. But you have to act quickly–call (253) 815-6940 for your free consultation, or email us today. Evening and weekend appointments available.