How to Settle a HELOC Amount

How to Settle a HELOC Amount
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HELOC stands for Home Equity Line of Credit. It’s a lender’s fancy way of describing a second mortgage that a borrower has access to for many years, working like a credit card. All HELOCs use property as collateral, but are subordinate to the primary mortgage on your property. In some cases, when borrowers are cash-strapped, they can settle a HELOC for less than the total amount of the debt.

With bankruptcy

File a Chapter 7 or Chapter 13 bankruptcy with the assistance of a competent bankruptcy attorney. At the court hearing for the bankruptcy, the judge will either discharge (dismiss) the HELOC as a unsecured debt, or structure a court-ordered repayment plan. If the court discharges the HELOC, no further action is required. If a payment plan is ordered, interest and late fees will no longer accrue on the debt, allowing you to settle for less than the terms stated in the promissory note.

Pay the debt according to the terms outlined by the court. Make your monthly payment to the trustee, who then distributes the payment to the creditor. Continue this until the debt is paid.

Make as many additional payments on the HELOC debt as possible to the trustee, as money is available to do so. This pays off the debt much faster and helps expedite the bankruptcy discharge.

Without bankruptcy

Send a letter to the creditor, requesting to settle the debt. This is most effective when you have fallen behind on payments and no longer able to maintain the expense. In the letter, include the reasons that you are unable to pay and a statement of your monthly budget, validating expenses.

Wait 30 – 60 days for a response from the HELOC. The HELOC company will either accept the terms as is, or provide a counteroffer. If the terms are acceptable, take the next step. If not, send another letter countering the offer.

Pay the settlement amount agreed to with the HELOC company via money order or certified check. Send a copy of the settlement agreement with the payment. Allow the company 30 days to confirm receipt. Once confirmed, the HELOC is settled.


  • Debt settlement is never a surefire solution; some lenders will work with borrowers while others will initiate foreclosure proceedings. In these cases, bankruptcy is the most effective solution for a borrower, as it provides an automatic stay and umbrella of protection against foreclosure from a HELOC holder.