In too many situations, older homeowners take out home equity lines on their property yet fail to fully understand what that means. In too many cases, this leads them to a point at which they feel they have no options and may lose their home. In some cases, bankruptcy can help.
Consider the following scenario:
Patsy and Sam are 85 and 86, respectively. They have been married for their entire adult lives. Their children are grown and moved out. They long ago paid off their original home mortgage, but in later years took out two different home equity loans: one for $100,000 and one for $120,000. The $100,000 home equity loan is up to date and current, but the home equity loan for $120,000 hasn’t been paid in close to a year. The couple is now receiving letters advising them that they will lose their home as a result of nonpayment. The couple lives off of social security benefits in combination with stock worth approximately $100,000. Now they aren’t sure what to do! File for Chapter 7? File for Chapter 13? Transfer stock ownership to eliminate loss of the asset through bankruptcy?
In this situation, the couple would be facing an uphill battle to save their home. There are a number of problems that would need to be addressed – first of which is the fact that they will need additional monthly income to solve the problem permanently. In some cases, family members can contribute to make this happen, but that particular solution is limited to certain families with the financial means to assist their parents, grandparents, etc.
First off, yes, the lender can foreclose in response to an unpaid home equity line. Home equity lines are secured by the property. Payment on the lines is required or the lender will foreclose. Filing for Chapter 13 could be an option, as this type of bankruptcy would allow them to pay back the delinquent mortgage payments over the course of 3-5 years. They would need to make the normal payment to the lender alongside a payment to the court. The normal payment to the lender would keep the loan from falling more behind while the payment to the bankruptcy court would pay back the delinquent amount.
Most importantly, DO NOT HIDE ASSETS. This includes transferring assets or stock out of the name of the individual filing bankruptcy. This is illegal. It is never a good idea to compound the financial problems and potential loss of a home with bankruptcy fraud.
It’s possible that filing for Chapter 13 bankruptcy could alleviate the above scenario, but it’s also possible that the lack of a viable monthly income will continue to pose a problem. If you have questions regarding the potential financial resolution you could obtain through filing for bankruptcy, please get in touch with one of the experienced southern California bankruptcy attorneys at Westgate Law today.