What Happens to Your Home Equity Line in South Carolina Bankruptcy?
When considering bankruptcy in South Carolina, it's essential to understand the implications regarding your home equity line of credit (HELOC). A HELOC allows homeowners to borrow against the equity in their home, but when filing for bankruptcy, its status can change significantly.
In South Carolina, bankruptcy can generally be filed under Chapter 7 or Chapter 13. Each type of bankruptcy has different impacts on your home equity line.
Chapter 7 Bankruptcy and HELOC
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows individuals to discharge unsecured debts. However, secured debts, such as a mortgage or a HELOC, are treated differently. If you have equity in your home, the HELOC may not be dismissed completely. The bankruptcy court will assess your assets, including your home equity.
If the home has significant equity above the allowed exemption amount, the bankruptcy trustee may sell the property to pay off creditors. South Carolina allows a homestead exemption up to $60,000 for single filers and up to $120,000 for joint filers. If your equity exceeds these amounts, you risk losing your home.
Additionally, the HELOC lender retains the right to collect on the debt following bankruptcy proceedings, which could mean continuing to make payments to avoid foreclosure. If the property is sold, the lender will be paid from the proceeds after other debts are settled.
Chapter 13 Bankruptcy and HELOC
Chapter 13 is a reorganization bankruptcy that allows debtors to create a repayment plan to pay off some or all of their debts over a period of three to five years. In this case, a HELOC can be treated differently, especially if you are in arrears.
Within Chapter 13, you can potentially keep your property and lower your payments. You will likely have to manage your HELOC along with the rest of your debts in a repayment plan. The HELOC lender must be notified of your bankruptcy filing, and they will hold a claim in your bankruptcy case.
If your home is worth less than what you owe on the HELOC, it could be classified as an unsecured debt, allowing you to discharge part of it. However, if there is equity, you may need to include the HELOC in your repayment plan, ensuring that you can maintain ownership of your home.
Impact on Credit and Future Financing
Both Chapter 7 and Chapter 13 bankruptcies will significantly affect your credit score. While discharging or reorganizing a HELOC through bankruptcy may provide relief, it may also hinder your ability to obtain financing in the future. Lenders will view bankruptcy filings as a risk factor, potentially leading to higher interest rates or outright denials for new credit lines.
Consulting a Bankruptcy Attorney
Given the complexities surrounding bankruptcy and home equity lines, consulting with a qualified bankruptcy attorney in South Carolina is crucial. They can help you navigate the legal landscape, assess your specific situation, and provide tailored advice on how to manage your HELOC during bankruptcy proceedings.
Understanding how your home equity line will be handled in bankruptcy can help you make informed decisions about your financial future. Whether you choose Chapter 7 or Chapter 13, ensure that you are well-informed and supported throughout the process.