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Home equity loan may prompt elderly couple to file Chapter 13

Purchasing a home has always been one of the pillars of the so-called American dream. However, this has caused problems for some people in Texas and elsewhere who are struggling with mortgage debts. Also, those who decide to take equity loans out on their homes may find themselves encountering debt problems. One couple who recently found themselves with this type of problem is now considering filing a Chapter 13 bankruptcy.

The husband and wife are in their 80s and had taken out two separate home equity loans. The husband took out $100,000 in home equity and has been working to pay off the loan. Unfortunately, the wife has not been able to make payments on her $120,000 equity loan over the last nine months. Reportedly, she is now worried because she has been receiving letters from the creditor threatening to take the home.

Although the first mortgage was paid off, the equity loans are secured in a similar manner. The home is the collateral for the loans. The lender will more than likely foreclose on the home if the wife continues to fall behind on her payments. Under the right circumstances, a Chapter 13 bankruptcy could be a viable solution. This type of bankruptcy may allow them to keep their home while making specified payments under a repayment plan approved by the Bankruptcy Court.

Generally, a Chapter 13 bankruptcy in Texas allows a filer to make the payments over a time period of up to five years. The couple would make their usual payments to the home equity lenders, except they will now also make another payment to the court under the approved plan. That payment will be used to pay off any past due balances, while the usual payments made to the lender will keep the couple from falling farther behind on their loan repayment.

Source: Fox Business, Can't Pay Off Home Equity Loan -- File Bankruptcy?, Justin Harelik, Nov. 20, 2013

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