can you cash out a heloc before bankruptcy?

[bkplan]

My home is securing a commercial building which we are unable to sell and will give back to the bank. For certain they will come after the house. We have a 400k HELOC which we have only used about 50k. Can we cash out the rest before the bank takes the building and eventually the house? What's the legality of it and what can they do to try to get back the money if we have no more hard assets and declare bankruptcy?

Thanks for the advice

[rjmwx81]

This would essentially be just the same as ringing up a big credit card debt before filing: it would almost certainly be seen as fraudulent. They can file an adversary proceeding and have the debt declared non-dischargeable. Then you would still owe it after the bankruptcy, and they could use all legal means of collections: garnishment, liens, etc.

[bkplan]

Oh i see, so how would one be able to use the heloc, and not have the debt declared non-dischargeable?

[HHM]

Oh i see, so how would one be able to use the heloc, and not have the debt declared non-dischargeable?

Well, you can't commit fraud.

The other problem, let's say you did that, what would you do with all the cash? No way to really protect it in BK.

Sorry to say, no easy way out of this one (but then again, you have only provided scant information about your circumstances.)

[rjmwx81]

I really don't see any way you could access the HELOC without getting into trouble. Remember, when you use a HELOC you're not "taking cash out of your home" really, you're taking out a loan with your home equity as the collateral. And any loans taken just prior to BK are going to be presumed to be abuse...that is, you have to PROVE that you're not committing BK fraud, not the other way around.

[newbie2]

You have to stop thinking of the HELOC as cash that is yours. It isn't. It's a line of credit, a loan, offered by the bank. You cannot borrow that amount of money, take the cash, file bankruptcy and expect a happy ending.

[despritfreya]

Besides the huge fraud issue. . . What do you plan on doing with 350K. . . a bank in the Caymans maybe? Use some common sense. This is how folks end up in "Club Fed".

[Freddy03]

First - yes it would be considered fraud and Second - are you even sure you still have all the equity in HELOC?? Mine was cut from 50K to 15K last year.

[newbie2]

I'm beginning to think that the OP is pulling our legs...hard to imagine that anyone would even consider doing that.

[despritfreya]

I'm beginning to think that the OP is pulling our legs...hard to imagine that anyone would even consider doing that.

Actually I have seen this type of activity before. Never a good outcome.

[rjmwx81]

I'm beginning to think that the OP is pulling our legs...hard to imagine that anyone would even consider doing that.

No I think it's an honest question. Many, many people view their available HELOC as an asset, because for years the banks have advertised it as "putting your equity to work," "taking cash out of your home," etc...calling it everything but what it is: a loan.

Some people view their credit limit on cards the same way: as money that's there for their use, not as an offer of a loan. That's how a lot of people get into trouble with credit in the first place.

[scorpion35]

My home is securing a commercial building which we are unable to sell and will give back to the bank. For certain they will come after the house. We have a 400k HELOC which we have only used about 50k. Can we cash out the rest before the bank takes the building and eventually the house? What's the legality of it and what can they do to try to get back the money if we have no more hard assets and declare bankruptcy?

Thanks for the advice

what u are trying to do is called FRAUD
That money is not yours for the taking
only someone of questionable moral values would even consider doing that

[rjmwx81]

only someone of questionable moral values would even consider doing that

Let's not be too judgmental. There are lots of people who think that declaring bankruptcy at all is immoral. Every situation is different. I still think the OP represents a large number of homeowners who view their HELOC's as "their money" instead of the bank's.

[onwards]

Depends on timing, legally speaking.

BK filings generally look back 6 months (I think; you better check it). So if it's within that window, you most likely will end up in trouble.

More than that, and it becomes much more tricky for the lender to prove you had fradulent intent. Still, I would certainly ask where that money went and you would need to provide a good explanation - just withdrawing 350K will likely raise some eyebrows, because it doesn't sound like you have significant other assets that might require a big cashflow.

[onwards]

what u are trying to do is called FRAUD
That money is not yours for the taking
only someone of questionable moral values would even consider doing that

Baloney.

If the property is worth less than the combined amount of 1st and HELOC, then the HELOC lender had better not authorize the withdrawal. If they do, and get left holding the bag, it really is their problem.

I have absolutely no compassion for commercial lenders at this point. The way I have been treated - by ALL of them - has made it so that my mindset when it comes to dealing with them moving forward is simple: it's only business. I will use every advantage I can in our transactions with no remorse or care in the world, just like they do. If the OP can legitimately get that money out legally and without landing in hot soup, I will cheer him to go on and do it. And I sincerely hope it's BAC, or Wells, or Citi, or HSBC, or any one of those others that get screwed. The more the merrier.