- 1). Research the kind of bankruptcy you plan on filing. The type of bankruptcy you are filing also determines the discharge procedures that will apply. For example, in Chapter 7 bankruptcy, debts resulting from malicious damage to property, as well as debts from property settlements in divorce and separation cases, cannot be discharged.
- 2). Ensure that the home equity loan is listed. All debts that will be discharged in the bankruptcy proceedings should be listed in the original filing. Any omitted debt cannot be discharged.
- 3). Take note of special circumstances. Some debts are able to be discharged, while others are not. Bear in mind that debt secured by property can often not be discharged. However, if you owe more than your house is worth, there may be nothing left for the home equity holder to claim, especially if the loan is a second lien. In this case, the lien is discharged.
For example, if your house is worth $250,000 and you owe $225,000 on a first mortgage and $25,000 on a home equity loan, the latter can be discharged as it is no longer secured by the property. - 4). File a motion or respond to a motion if necessary. If the home equity loan was not automatically discharged with the other debt, file a motion to request that it be discharged. A hardship discharge may apply. This is applicable in Chapter 13 bankruptcy, where due to a hardship the debtor is unable to keep up with the repayment plan.
If the lien holder requests that the lien be exempt from discharge, you will need to fight it. This is when Step 5 becomes relevant. - 5). Contact a bankruptcy attorney. Bankruptcy procedure can be overwhelming for the lay person, so you are better off working with a bankruptcy lawyer. This should cost a few thousand dollars depending on where you live. If you cannot afford an attorney, contact your local bar association or legal aid office.
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