Legal Question in Bankruptcy in California

The acronym "HELOC" means "home equity line of credit." Therefore, if not secured by real property, usually but not necessarily the person's home, it is not a HELOC by definition. In California deeds of trust are used to secure debt with real property. Other states use mortgages. Mortgages are legal in California but extremely rare. An unsecured line of credit is just a personal loan that is dischargeable in Chapter 7 bankruptcy. A HELOC which is in second position (junior) may be voided if against the person's home and the value of the home is less than the balance of the first deed of trust and any other senior liens against the property. To void that HELOC or any other second or junior deed of trust on a person's home requires a Chapter 13 case. You cannot void secured (voluntary) liens such as deeds of trust in a Chapter 7 case.

The first deed of trust (first loan) on someone's home may not be voided or changed in bankruptcy no matter what Chapter. Congress prohibited the bankruptcy courts from changing the terms of the first deed of trust on the home of the person who is filing for bankruptcy.

That law should be changed to resolve the problem with people losing their homes. The bankruptcy court should be allowed to modify the first loan on a home to allow people to keep their homes. The court should be allowed to reduce the balance of the first loan down to the value of the property and void junior liens. Big corporations filing Chapter 11 can do things like that but not persons who are losing their homes because the banks are arbitrarily refusing voluntary modifications. Write your Congress representatives and tell them that the banks got billions from taxpayers and that the law should be changed to give persons the same rights as corporations in bankruptcy cases.