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Bankruptcy may help when home equity loans are overdue

Some homeowners in financial trouble in Michigan and nationwide say that their home is "paid off," but then add that they have "home equity loans." They might then say that those loans are overdue. Putting aside the terminology, those home equity loans are mortgages secured by their residences, and their homes are not "paid off," even if the original mortgage has been paid. The company holding the home equity loan can indeed foreclose on the home if not paid, just as the original mortgage holders could. One possible way to attempt to save the home is a personal bankruptcy.

A Chapter 13 bankruptcy, for example, ends all foreclosures or collection actions. To retain the home, you must start paying the current loan payments. The overdue past amounts can be paid off in installments over time, for up to 60 months.

Deciding to do this requires a detailed examination of the homeowner's finances, including the finances of their spouse, if they are married. Sometimes, it may also be possible to negotiate a modification of the home equity loan with the lender or to consolidate two or more separate loans on a home into one with a better interest rate or more time to pay. In other instances, selling the home and retaining some of the proceeds may be a more viable option.

One thing is clear: choosing the right path for your situation is complicated and requires a consultation with an experienced attorney to make sure that what you want to attempt to do will work both legally and practically. Full disclosure of all the facts is necessary to get good advice and make an informed decision.

Source: Fox Business, "Can't Pay Off Home Equity Loan - File Bankruptcy?" Justin Harelik, Nov. 20, 2012

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