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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
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Experience:  Bankruptcy professor.
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What is a good settlement amount to offer on a $42,000 heloc

Resolved Question:

What is a good settlement amount to offer on a $42,000 heloc that was transferred to a third party servicer after bankruptcy?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 3 years ago.

Hi JACustomer,

Was the HELOC discharged in the Bankruptcy?

If not, when was the last payment on this account?

Customer: replied 3 years ago.
Yes, it was discharged in Bankruptcy (and the bankruptcy judge "abandoned" interest in the house) but there is still a lien on the title. This whole question is arising because I am trying to modify my first mortgage. The second mortgage was charged off and and the HELOC still is in place too. Or is it? It is my understanding that if I choose to keep the house, the liens all stay in place. But since they are basically charging them off (the second & HELOC) shouldn't I try to make a settlement offer? The First Mortgage bank had asked me to get an a "Voidance of Lien" for the HELOC but I don't think they will just give it to me just like that.
Expert:  cfortunato replied 3 years ago.

If the trustee abandoned the house, there was probably not enough equity for the lien. This means the lien could have been "avoided" (removed) in the Bankruptcy. If there is a lien on property when a Bankruptcy case is filed, a separate "Lien Avoidance" proceeding must be done to remove the lien. This is because a Bankruptcy - alone - cannot remove a lien, it can only discharge the debt that resulted in the lien.

If it there was no separate Lien Avoidance proceeding in your Bankruptcy, you can have the Bankruptcy case re-opened now for the purpose of filing a motion to have the lien avoided.

Otherwise, considering the fact that you can do this, a settlement offer of $1,000 - $5,000 to the lender to remove the lien would be reasonable.

 

I think this is what you wanted to know. If not, please let me know.
Thank you!



Edited by cfortunato on 1/5/2011 at 6:45 PM EST
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 2 other Bankruptcy Law Specialists are ready to help you
Expert:  cfortunato replied 3 years ago.

Thank you for accepting my answer!

However, I just realized I gave you an incorrect answer. A HELOC is treated the same way as a second mortgage (even if it is the third loan secured by the house), and a lien for this cannot be avoided in a Chapter 7 Bankruptcy (only in a Chapter 13).

However, because you have no legal obligation to pay the HELOC, a settlement offer of $1,000 - $5,000 is still reasonable, since you do legally have to pay anything, and can file a Chapter 13 at some point in the future (4 years after the Chapter 7).

I apologize for the misinformation, and any confusion it may have caused.

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