Defaulting on Home Equity Line After Ch. 7

[philrich]

My in-laws in Iowa filed Ch. 7 and it was discharged on/around 12/31/2005.

They have a home equity loan worth with a balance of more then the value of the house. They've been unable to sell the house. The home equity line was part of the bankruptcy. There is no other mortgage on the property.

After the bankruptcy was discharged - they stopped making payments on the home equity line. I don't believe that a reaffirmation agreement was signed.

The bank is doing nothing - nothing that can be seen anyway - and property taxes are accruing and not being paid.

Questions:

1) How bad of a mess are they in?
2) Can they transfer the deed of the house to the bank and walk away?
3) Aside from the house itself - can the bank go after any additional assets?
4) Are they liable for the difference between the ultimate value of the house and the balance of the mortgage?

[SinkingFast]

If the HELOC was indeed included in the BK, and your parents did not reaffirm the mortgage, then they can just walk away from the house. Be sure and check out their BK paperwork to make sure the Loan was included and indeed discharged, and there was no reaffirmation agreement signed. If you can't find it in the paperwork, then call the attny just to be on the safe side. You want to know for sure before you do anything.

I believe the taxes are the responsibility of the Lender post discharge, but insurance is a different matter. The deed is still in your folks name, so if someone were to slip and fall on the property, they could sue holding your parents liable. So be sure that until their names are no longer on the deed, there's insurance to cover them against liability on the property.

Foreclosure Laws vary State to State. Iowa is a Judicial Foreclosure State. Meaning the Lender is gonna have to notify your parents of their intent to Foreclose, advertise the house for sale, and hold a public auction. According to one website I looked at, the timeline is approx 150 days from start to finish. Your parents can offer the Lender a Deed in Lieu of Foreclosure and voluntarily turn over the property to the Lender.

http://www.stopforeclosure.com/Iowa_Foreclosure_Law.htm

[philrich]

Defaulting on Home Equity Line After Ch. 7

If the HELOC was indeed included in the BK, and your parents did not reaffirm the mortgage, then they can just walk away from the house. Be sure and check out their BK paperwork to make sure the Loan was included and indeed discharged, and there was no reaffirmation agreement signed. If you can't find it in the paperwork, then call the attny just to be on the safe side. You want to know for sure before you do anything.

I have my in-laws initial filing - shere the HELOC is identified.

Is there a specifc place I should look to see if it specifically was discharged?

Regarding a reaffirmation agreement, are they filed with the bankruptcy court?

Thanks for your help.

[SinkingFast]

I don't know if the reaffirmation goes thru the Court or not. I know it's an agreement between Debtor and Lender. But whether or not it becomes an official part of the BK paperwork, I don't know. We're on the filing side of things. Haven't gotten to the discharge side yet. And won't have any loans to reaffirm. So not sure exactly how it works.

I do know,......... Old Law, Debtors would wait until the last minute, sign the reaffirmation, get discharged, and then revoke within the 60 day period.

The HELOC shouldn't have any affect on any other assets, unless the loan included other assets as securing the debt. Usually HELOC's are on the residence only. But you might wanna check, just to be on the safe side.

We had what we thought was a signature loan years ago. Found out when we pulled our Credit Reports for the attny for the BK, the Bank listed furniture and household appliances as security against the loan. Sometimes Lenders sneak things in on us without us knowing.

If you can't find a copy of the reaffirmation or have any questions about where you stand, call your folks' attny. Also, even tho it should be pretty straight forward, you might want the attny to handle the DIL if you decide to go that way. The attny may charge a small fee to do that, but it could be money well spent.

[keepmine]

A reaffirmation agreement must be signed AND properly filed with the courts.
A call to the attorney should get the question answered.
The discharge letter does not specify each individual debt that was discharged. It'll just say all debts eligible for discharge are discharged.