What to do inthe case of senior citizen who has credit card debt and is underwater on anHELOC?

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What to do inthe case of senior citizen who has credit card debt and is underwater on anHELOC?

My mother is 82 with credit card debt and underwater on HELOC. No first mortgage. Tried to sell house for a year with no luck. Can’t maintain property and wants to walk away. Credit rating is not important. Also, owes 2 years property tax. Only income is SSand pension. If she defaults what are the repercussions?

Asked on May 30, 2011 under Bankruptcy Law, Missouri

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If she defaults, besides losing the home (foreclosure), she could be sued by the lender for any remaining balance owed on the HELOC IF the foreclosure sale of the home and its proceeds does not fully pay off the HELOC.

Generally social security income and pensions are safe from creditors, though since the law varies by state, you and your mother need to consult with an attorney (e.g. a bankruptcy attorney) to be sure. Also, even if the SS and pension are themselves safe, any money in bank accounts (even if originally derived from SS and pension payments), other property, personal belongings, vehicle, etc. may be things that a creditor can reach. Your mother may wish to consider bankruptcy as an option to discharge these various debts; bankruptcy is very effective, for example, against credit card debt--though it does not discharge tax debts, generally.

Short answer: someone with only SS and pension income is possibly safe from most creditors (e.g. not necessarily the government), especially if she does not not have assets she wishes to protect and/or if she will file bankruptcy. However, it would be worth consulting with a bankruptcy lawyer to confirm this, and to also determine how best to maximize her protection. Good luck.


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