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What rights do home equity lines have after I file bankruptcy?

Many homeowners have found themselves with negative equity in their property.  As such, they have made the decision not to pay their second mortgages or home equity loans.  They do this with the expectation that the junior lien holder will not foreclose due to their status as a second position lien holder.  Often these same people will file a bankruptcy case.  When such a Debtor files a Chapter 13 case, the homeowner has the right to file a Motion with the Court and ask that the lien itself be classified as unsecured debt and that at the conclusion of their bankruptcy case, not only the debt be discharged, but that the lien that secures any interest the bank may have in the property be stripped or removed.  When this happens, the junior lien holder has no right to foreclose down the road when the homeowner does not pay their second mortgage.  However, the lien holder may challenge the Debtor’s motion in Court, and represent that the does have some equity to secure the junior lien.   The key is that the Debtor must prove that if the property were to be sold at foreclosure there would be no money after paying the senior lien holder to pay the second mortgage.

When a junior lien holder’s rights change a bit though is when the Debtor files a Chapter 7 case.  With a Chapter 7 discharge, a secured creditor can seek some limited recourse against the property, but not against the Debtor personally.   After the bankruptcy discharge, the homeowner cannot be held personally responsible for any debt owed to the bank.  They would have receive a fresh start under the bankruptcy.  However, the lien against the property still remains intact, and the bank can foreclose.  The risk though that the bank takes is that they must first pay the senior lien holder all the money they are owed before the junior lien holder can take anything.

In some situations though, a creditor may have already brought a law suit against the homeowner prior to filing the bankruptcy.  Once the bankruptcy case is filed, the automatic stay stops any law suit for money debt against the Debtor.  A foreclosure would be stopped as well pursuant to 11 U.S.C. s. 362(a).   However, the Debtor must take certain steps to protect themselves and ensure everyone including the state court is aware of their bankruptcy filing and subsequent discharge order.  The Debtor muse ensure both the court and the creditor’s attorney has a copy of the Notice of Bankruptcy (a legal notice called a suggestion of stay). Once the Debtor receives their Notice of Discharge, provide a copy of that too. This will ensure that a judgment against the Debtor is not inadvertently entered and more motions to vacate a judgment need be filed.

Finally, it should be noted that if the homeowner falls behind on their payments in a Chapter 13 case without stripping the lien, or in a Chapter 7 case, simply by being behind, the creditor may get permission of the court to go after the property while the case is active, by filing a Motion with the bankruptcy Court to lift the automatic stay.  In these cases, you will need to consult with an experienced bankruptcy attorney to challenge such a Motion.

What To Do With Payday Loans If You Cannot Pay Them?

To begin, if you read my other blog article on why you should not incur payday loans you would understand my position on payday loans.  If not I will put my position in nut shell—NEVER, NEVER use a payday loan.  If you are running short on money each month you have to make a change in your life.  Whether it is simple as stop spending what you are spending each month or may need to consider filing a bankruptcy to resolve your lingering debt stress.  Either way, the short answer is that you never need to use a payday loan ever.

However, I know many of you have already step into the world of payday loans and are too far in and now must deal with the consequences of your choice.  I can understand why someone would chose to use them.  They are so attractive that they are hard to pass up.  They have it set up that all you need to do is call them, give them your social security number, date of birth and apply for a loan.  They do not even worry about your credit.  They suck you in and like even the biggest fish, once you are hooked you are going to be reel in and cooked for dinner.

So, what do you do if you cannot pay your payday loans?  The structure of repayment of the payday loans is based upon the fact that you are going to receive a direct deposit of your paycheck.  The very day that you get paid, the payday lender takes a payment out of your bank account.  The payday lender will either demand an electronic withdraw or cash a check you have already written out and postdated. Both of these methods stink for you because if you could afford your finances in the first place, you would not need the loan.  The reality is even after the loan, you still cannot afford your finances and you have another loan on top of your already inbalanced finances.

There are a couple of things you can do to deal with these loans.  First, you can close your current bank account.  Some banks say that they cannot do that if you still have automatic withdraws or checks to be negiotiated against that account.  The truth is that the bank must do so.  However, the bank is right in someways.  You will need to stop payment on those checks you wrote.  Second, you will need to contact the payday lender and inform them you cannot may the payments they want.  If you do so, you might be able to regionate the terms of the loan.

However, you must not be in denial about the circumstances you are in.  Even if you are successful in stopping the huge interest payments payday loan payments from coming out of your pay, you still have to deal with the repayment of the loan.  The idea of stopping the payday lender from taking the money out of your bank account is simply to ensure you can pay your essentials—rent, car payment, insurance and etc.  So, what is the ultimate step that you should take?  You really must consider a bankruptcy case.  it is truly the only option in dealing with these types of loans when you cannot pay them back.  To be frank, you probably should have considered bankruptcy before looking for the fake salvation that a payday loan provides.  It is only delaying the real fact that sometime is not balanced with your finances.

I know it is hard to face the truth of your situation but there is freedom in accepting the imbalance.  Once you can look at your finances in the face, you can deal with them appropriately and avoid choices like payday loans that just increase your stress and financial problems.  It is ok to have financial issues you deal with but it is not ok to seek false financial salvation in a payday loan.  Payday lenders are not in it to help you but to turn a profits on those most desperate.