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What Happens to Your Home Equity Line of Credit If You File Bankruptcy?

what happens if you declare bankruptcy

Depending on the kind of bankruptcy you file, you may be able to get out from under a HELOC.


There are several forms of bankruptcy, the Nolo legal website states, but most individuals will have to choose between Chapter 7 and Chapter 13. Under Chapter 13, you'll have to pay off child support, mortgage and alimony debts, and you'll pay as much toward your other debts as you can afford. If you can't afford a Chapter 13 repayment plan, you can file for Chapter 7, which will wipe out most of your debts completely.


Under Chapter 13, you may be able to cut or wipe out your HELOC debt, depending on the size of your first mortgage, Nolo states. If the mortgage is worth more than your house, you can ask the bankruptcy court to declare the second mortgage is no

longer "secured" by your equity. Secured debts must be paid off in full, but unsecured debts may be reduced or wiped out. Chapter 7 bankruptcy doesn't work this way: A HELOC remains secured debt, no matter what the value of your house.



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