If you are like most people, you took out a line of credit against you home because either you needed to supplement your income or you used it to pay down existing debt, such as credit cards. Most lines of credit are based on adjustable rates, meaning that your payments can suddenly increase without notice, leaving you unable to make your payments.
How a line of credit is treated in bankruptcy turns on whether it is secured or unsecured. If the credit line is unsecured, such as a personal line of credit, then your bankruptcy attorney will be able to help you file bankruptcy to eliminate the debt in its entirety. If it is secured, then the debt can still be eliminated but your lender will still retain its security interest against your asset(s). If your home value has decreased, your credit line may even be upside down, meaning that the amount you owe on your home loan and credit line exceeds the value of your house. In such case, you may be able to remove the lien against your home by doing a lien strip of the lien placed against your home. You can actually physically remove the lien that presently encumbers your title.
If a credit line is unsecured, it means that the credit was extended to you based on a review of your credit history and your lender did not obtain any security against any of your assets pledges as collateral for the loan.
When you file bankruptcy, your unsecured lines of credit are characterized as unsecured debt and are treated very similarly to how credit card debt is treated in bankruptcy, which generally means that the debt is eliminated, absent any fraud or other circumstances preventing a bankruptcy discharge of the debt.
If a credit line is secured, it means that your lender retained a security interest in your asset(s) pledged as collateral, so that if you are unable to repay the loan your lender can resort to collecting on its security, which means foreclosing on your home.
Usually, a secured loan is secured by a deed of trust against your home. Often such a loan is called a Home Equity Line of Credit (HELOC) or a HELOC loan. A HELOC loan is usually structured like a mortgage loan. You give your lender a deed of trust giving your lender the right to foreclose on your home if you fail to make your payments as they become due.
When you file bankruptcy, your debt evidenced by a secured line of credit is treated just like how home loan debt is treated in bankruptcy. If you want to keep the security that you put up as collateral for the loan (usually your home), then you must become current on your payments and stay current on your payments. If you are behind on your payments, you still have an option to save your home. You can file a Chapter 13 bankruptcy and repay your missed payments through a Chapter 13 repayment plan.
If you want to let go of the collateral for the loan, that is, surrender your home or other asset pledged as security for the loan, you can stop making payments on the secured loan and in most cases the debt will be eliminated by your bankruptcy.
In cases where the balance on your first mortgage exceeds the value of your house, your San Diego bankruptcy lawyer may be able to perform a lien strip of the lien associated with a secured line of credit, and actually remove the lien recorded with the county and encumbering your home. That is, you can remove the deed of trust (take it off title) that you had given to your lender at the time that you took out the loan.