It is not unusual to find homeowners in New Jersey who have also taken out an equity loan. No matter the reason for it, an equity loan is a calculated risk. An equity loan is essentially a second mortgage that gives a consumer cash. This type of loan typically uses a piece of property, often a home, as security.
Those homeowners who find themselves unable to make payments on their equity loans face the very real possibility that their homes will be repossessed to pay off the balance of the loan. There are a few options for people in such a position, such as filing for a Chapter 13 bankruptcy in an effort to erase enough debt to keep the home.
Chapter 13 bankruptcy focuses on the reorganization of debt and assets so that those who are filing are better able to pay off their debts. The period of repayment is usually three to five years. Over this period of time, homeowners are usually expected to make two significant monthly payments; they will continue to make their mortgage payments, and they will make an additional payment to the court. The court then applies that payment to the delinquent loan.
Filing for bankruptcy, whether it is chapter 13 or another form, is a major decision, since the bankruptcy stays on the consumer’s credit report for several years. However, bankruptcy is one of the ways for consumers with defaulted equity loans to keep their homes. Because it is a complicated process, it’s frequently recommended that consumers file with the aid of a legal professional.
Source: Fox Business, “Can’t pay off home equity loan — file bankruptcy?“, Justin Harelik, November 20, 2013