Chapter 13 provides two huge advantages in dealing with a HELOC in certain situations:
1. Second Mortgage Strip-Off
If the market value of your home is less than the balance on your FIRST mortgage, you can "strip off" the HELOC. The HELOC loan amount is treated like other unsecured debts (e.g. credit cards) in your Chapter 13 Plan. Your plan payment is based on your ability to pay or "monthly disposable income." Unsecured creditors, including the HELOC, share the plan payment in proportion to their claim. At the end of the plan, you receive a discharge of liability for any unpaid balance due the unsecured creditors, including the HELOC. In addition, the mortgage securing the HELOC is discharged and your home is only subject to the first mortgage going forward.
2. Curing an Arrearage
Chapter 13 also allows you to cure a HELOC arrearage in your plan and prevent foreclosure. For example, if you are $3,600.00 behind on your second mortgage when you file your Chapter 13, you can cure the arrearage in a 36 month plan by paying $100.00 per month into your plan. The bank is not required to agree to this method of curing the arrearage. The court orders it. At the end of the plan, you are current on the HELOC. It is important to remember that in addition to the plan payment, you will be required to make the regular monthly HELOC payments, beginning with the first payment due after your bankruptcy filing date. Also, depending on your income and other factors, the length of the plan can be up to 60 months.
Your best option depends on your particular circumstances. It is always best to consult with an experienced bankruptcy attorney to maximize the benefit of your filing to your HELOC obligation.
The Massachusetts bankruptcy attorneys at Nashawaty & Rand serve clients throughout the Greater Boston Massachusetts region including Abington, Avon, Boston, Braintree, Brockton, Bridgewater, Canton, Dedham, Dover, Easton, Hanover, Hingham, Hollbrook, Marshfield, Medfield, Milton, Norwell, Norwood, Quincy, Randolph, Rockland, Sharon, Stoughton, Walpole, Westwood, Weymouth, Whitman, Massachusetts.