Many Tennessee residents take out home equity loans for necessities such as home improvements, large purchases and sometimes even to pay off other debts. This may seem like a good idea but issues arise when the loan is not paid on a monthly basis. Even f the home is otherwise paid off - with no other mortgage - it may still be subject to foreclosure with a home equity line. But homeowners do have options to handle these situations.
First of all, if a home has an equity line on it, it is not legally paid in full. Home equity loans are secured debts because if they're not paid, the lender can go after the house. Therefore, a homeowner who stops making payment on the home equity loan will face foreclosure.
If a homeowner falls behind on an equity loan worth tens or even hundreds of thousands of dollars, the homeowner can file for bankruptcy. A Chapter 13 bankruptcy would give the homeowner up to five years to pay back the loan. However, the owner would have to pay the regular monthly payment along with a second payment to cover the delinquency. This is not always possible for those in debt.
Many people take out home equity loans without thinking about the consequences. It can be easy to take out cash on a loan, causing homeowners to quickly rack up debt. In addition, a home is used as collateral with these loans, which means that the owner can potentially lose the home. Therefore, instead of an equity line, a person may wish to seek out unsecured loans if they need access to cash.
Source: Fox Business, "Can't Pay Off Home Equity Loan -- File Bankruptcy?," Justin Harelik, Nov. 20, 2013