Wednesday, October 19, 2011

Filing Chapter 7 bankruptcy in Arizona: What happens to a second mortgage/home equity line?

Second Mortgage or HELOC?
As a bankruptcy attorney, one question I get a lot from clients is what happens to their second mortgage or home equity line of credit (HELOC) when they file for Chapter 7 personal bankruptcy? Bankruptcy law generally protects your home, car and certain other assets. But how does that affect a second mortgage? You can't fully discharge it in the bankruptcy if you are keeping your home. The good news is your personal liability on the second mortgage/HELOC is discharged in the bankruptcy. The lender cannot sue you or garnish your paycheck. The bad news is the lender still has a lien. This means they can foreclose on your house after the bankruptcy finishes and is discharged. However, don't panic yet. If there is no equity in your home, or the equity is less than the amount you owe on the first mortgage, foreclosing will not be a viable option for them. As long as your home does not increase a significant amount in value, you should be fine. Many homeowners will sell their homes before home values go back up in a few years. Read more about this in a recent article on Fox News.

The Alexander Bankruptcy Law Firm provides low low cost Chapter 7 and 13 personal bankruptcies. $995 Chapter 7 or $2500 Chapter 13 bankruptcies plus court filing fee. Free consultation with a compassionate attorney who will handle your case personally. Call 24/7, available to meet with you around your schedule. 602-326-9116. Conveniently located in Central Phoenix along the Camelback corridor.

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