What happens to home equity in bankruptcy?
Jan Meriss Alfonso Assistant at Ascent Law LLC In bankruptcy, if you own a home, you may wonder what happens to your home equity loan or primary mortgage. Generally, bankruptcy wipes out the mortgage loan but leaves the lien on the home. This can have a dramatic effect on the value of your home. The good news is that there are ways to protect your home equity. Chapter 7 bankruptcy wipes out the mortgage loan but does not wipe out the lien A lien is an interest in property that a creditor has that guarantees the debt. It lasts until the debtor pays off the loan in full. In most cases, a lien is voluntary but in some states, it can be involuntary. If a lien is involuntary, the creditor placed it without the borrower's consent. A Chapter 7 bankruptcy does not wipe out a lien on home equity but does eliminate a mortgage loan. The amount of debt that can be discharged depends on the state. In some states, you can choose your own exemption list and choose how much of your property is e...