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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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I own and live in a house in WA thats under water. The mortgage

Resolved Question:

I own and live in a house in WA that's under water. The mortgage is $354K in my name only and there's a $114K HELOC with a different bank that's in my name and my ex-spouse's name, who lives in Canada. The house has been appraised at $430K. Both the mortgage and the HELOC are current (neither are in arrears), but I'm unemployed and no longer able to keep up the payments after this month. The mortgage is not a Freddie Mac/Fannie Mae so I can't refinance to combine the two loans into one via HARP 2.

Is there any way through bankruptcy to get discharged from the HELOC and still keep the house?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 1 year ago.

cfortunato :

Hi - my name is XXXXX XXXXX I'm a Bankruptcy attorney here to assist you.

cfortunato :

The rule is a second mortgage can be discharged in a Chapter 13 Bankruptcy if, and only if, the balance on the first mortgage is more than the current market value of the house.

cfortunato :

Actually, the HELOC can be discharged, but the lien cannot be removed if the balance of the first mortgage is less than the current market value of the house. If your house were worth less than $354K, it would be possible to get the balance of the HELOC discharged and the HELOC lien removed. Since this is not the case, the lien could not be removed in a Bankruptcy.

cfortunato :

Unfortunately.

Customer:

Would it be possible to discharge it via Chapter 7? Are there any other options other than Chapter 7 or 13 to get the HELOC discharged?

cfortunato :

The HELOC can be discharged in a Chapter 7 or a Chapter 13. But a second mortgage lien can only be removed in a Chapter 13 (but not in your case, since the first mortgage balance is less than the value of the house). Since you cannot get the lien removed in a Chapter 13, it would be better to file a Chapter 7 if you want to discharge the HELOC, because a Chapter 7 is less costly, and takes much less time (6 months vs. 3-5 years).

cfortunato :

Was the HELOC used to actually purchase the home?

cfortunato :

If so, is the HELOC the original loan, or was it re-financed?

Customer:

No...the HELOC was used to refinance another HELOC in 2008, which was used to construct the house back in 2004.

cfortunato :

Thank you for your response.

Customer:

I'm unemployed and in the final stages of divorce. I can't complete the divorce until I remove my ex-spouse from the HELOC

Customer:

so I'm trying to figure out ways to do that and retain the home if possible

cfortunato :

That does not make sense because there is nothing you can do to remove your husband's name from the ELOC.

cfortunato :

from the HELOC.

Customer:

I'm the husband LOL

cfortunato :

Sorry!

Customer:

I'm a Catch22

cfortunato :

It is not possible for you to remove your wife's name from the HELOC, because the lender will absolutely not allow it.

Customer:

I agreed to remove her from the HELOC as part of the divorce settlement, but that was before I found out I have to refinance it in order to remove her

cfortunato :

That is very common. There was once a time when this was easy to do - but no longer.

cfortunato :

No lender will re-finance any mortgage when there is not enough equity in the house.

Customer:

I'm stuck...can't refinance, can't get divorce, if sold house, will get dinged with amount below water from HELOC unless I could get rid of it via bankruptcy...which is very likely because now unemployed and no savings left

cfortunato :

You can have your liability to pay the HELOC discharged in a Bankruptcy, but your wife will also have to file one to have her liability to pay the HELOC discharged.

Customer:

OK...can that be via Chapter 7 for me? What happens if I do that and she doesn't file for bankruptcy?

Customer:

Also, what are the chances the bank (Bank of America) will go after her in Canada and that she's Canadian? Do you think they may discharge the whole HELOC in that case?

cfortunato :

I do not know bank policies regarding debtors who live in Canada. (Perhaps you can find out by asking that question in the Canada Law section.) But I do know her liability to pay the HELOC will not be discharged in your Bankruptcy if she does not file a Bankruptcy - even though she is living in Canada.

cfortunato :

She would have to file in Canada.

Customer:

OK...very good.

Customer:

What if I become employed while the bankruptcy process is ongoing. What can change? Ideally, I want to stay in the house as long as possible and be discharged from all my debt as soon as possible.

Customer:

Also, are there any prerequisites for filing chapter 7 (such as maximum income)?

cfortunato :

The Bankruptcy court looks at your income for the 6 months preceding your Bankruptcy filing, and does not look at your income after your case is filed - unless you know before filing that you are definitely going to get a job after filing.

cfortunato :

Yes - how many are in your household?

Customer:

I've been unemployed for 8-9 months, since March. I don't have any dependents living with me.

cfortunato :

You would have to earn more than $4305 gross per month to not be able to file a Chapter 7.

Customer:

OK...I make less than that on UI

Customer:

So...can I file chapter 7 right away?

cfortunato :

You would have to already have a job lined up that will pay you more than $4305 per month before you file a Bankruptcy for there to be a problem.

cfortunato :

UI does not count towards the $4305.

cfortunato :

Yes - you can file one now.

cfortunato :

Since you have only earned UI for the past 6 months.

Customer:

OK...just to be clear...I can file Chapter 7 now and be discharged from all unsecured credit and the HELOC. I can remain in the home as long as I'm good with the mortgage company company? Would a discharge of the HELOC for just me prompt a foreclosure if the mortgage is good?

Customer:

and the HELOC was in default

cfortunato :

Yes - if the HELOC is not being paid, even though discharged for you in a Bankruptcy, you can expect the HELOC lender to foreclose the house.

Customer:

ok

cfortunato :

This would be so even if your wife also filed a Bankruptcy.

Customer:

Can I file Chapter 7 myself or is it advisable to do that via a lawyer?

Customer:

So if I wanted to keep the house, then I can't have the HELOC discharged by the sound of it

Customer:

What if I filed Chapter 7, didn't have the HELOC discharged, but a few months down the road the house was foreclosed on, can I have the HELOC discharged (for me) somehow?

cfortunato :

It is possible, but very difficult, to file a Bankruptcy on your own.
Instead of paying a Bankruptcy attorney $1,200+ to fill out and file the
60-page petition, you can pay a Bankruptcy preparer $200 to fill out
the papers, and then you can file them on your own.

Customer:

How do I file them? Is there a link? Also, do my credit cards have to be in arrears a certain amount of time before I can file?

Customer:

One other question...what if I filed Chapter 7 and included the HELOC to be discharged for me, BUT kept up the payments on the HELOC (on her behalf) so I can stay in the house until either:
a) the value of the house improves so I can sell it without a loss OR
b) if I can no longer afford the payments, then the house would be foreclosed at that point but at least I was able to prolong living in the house AND wasn't obligated for any loss on the HELOC

Expert:  cfortunato replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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Expert:  cfortunato replied 1 year ago.

1) You have to file the Bankruptcy papers by bringing them to the Bankruptcy court.

2) No - your credit cards do not have to be in default before you file. If they are in default, there is no minimum amount of time that they have to be in default before filing.

3) You can continue to make the HELOC payments even after the HELOC is discharged. Keeping the HELOC payments current will prevent the lender from foreclosing, so that you can continue to live in the house.

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and other Bankruptcy Law Specialists are ready to help you

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