How do I dismiss a home equity line of credit with bankruptcy?

You might be able to get rid of a home equity line of credit (often called a HELOC) through Chapter 13 bankruptcy if the equity in your home is not enough to secure the HELOC. This is called "lien stripping."  Here's how it works.

If the value of your home has declined so that your equity no longer covers the HELOC, the home equity line is no longer secured by your home. In this situation, the bankruptcy court can "strip off" the HELOC and reclassify it as unsecured debt.

For example, say your home value has declined to $500,000. Your first mortgage is $500,000. You have a home equity line of credit, originally secured by your home, on which you now owe $30,000. Because your mortgage equals your home value, there is no equity left over to secure the HELOC. The HELOC is now unsecured.

If the HELOC is reclassified as unsecured debt, it is added to the debtor's other unsecured debts which are paid through the Chapter 13 repayment plan. Most Chapter 13 filers pay only a small portion of their unsecured debt through the plan; the rest is discharged at the end of the bankruptcy.

To learn more about stripping liens off your home, see How to Strip a Second Mortgage or HELOC in Chapter 13.