|By Ashley Russell on March 1, 2011
For many people who fall far into debt, bankruptcy may be the answer to their financial problems. Once you are sure this is the solution to your problems, you may look into the different kinds of bankruptcy you can file. If you have taken out a home equity loan, it may be beneficial to file bankruptcy on this loan to take control of your money woes.
A home equity loan is when an individual takes out a loan or opens a line of credit using their home as collateral. An important note is that the loan is based on the current value of your home, not what it was purchased for or how much is owed on it. This type of loan is often useful to take for large home repairs, renovations, college expenses, major medical bills, etc. Basically they are used for things that require a large amount of money and are essential/good investments. Companies are willing to give out these large loans because the home is collateral, meaning they can seize and sell the house if a homeowner defaults on their loans. These are often considered "second mortgages" because they are taken out on the equity of your house, but are not used for paying for the house.
If someone who has taken out a home equity loan encounters financial trouble there are many ways for them to get help. Bankruptcy is an unfortunate last resort for many individuals with very severe financial problems. Bankruptcy is a complicated process that does more than just clear away all of your debt. There are many different levels and types of bankruptcy that all have their own requirements, rules, and policies. They often have different discharges. A discharged is a statutory order by the government for an individual or organization to stop the process of trying to collect money. In the case of a home equity loan it would prevent the financial institution from seizing and selling the house to make up for the debt.
When proceeding with bankruptcy it is important to take your time to figure out what types of bankruptcy you qualify for and what type is going to give you the best chance for financial stability in the future. Ensure that home equity loans are listed as one of the things that can be discharged by the type of bankruptcy you plan on filing. Be sure to look into any special case rules with the bankruptcy and if home equity loans are not listed in the type that you end up filing ask for an appeal to get it discharged.
In the end the best thing to do if you are looking to file bankruptcy with a home equity loan is to take the time and money to find a reliable, experienced, and knowledgeable bankruptcy lawyer who is willing to look over and understand your situation and help you find the best possible solution to your financial problems through bankruptcy. Remember that bankruptcy will have negative impacts on your credit for years to come so it is in your best interest to look into the many other options, such as debt settlement, consolidation loans, and credit counseling before signing the dotted line to declare bankruptcy.
Note: A home equity loan bankruptcy involves more than just second and third mortgages. Always obtain competent legal advice if you are considering bankruptcy as a solution to your debt problems.