Discharge of HELOC debt in bankruptcy is complicated. Generally, in California, for purchase money debt (standard 1st mortgage debt or HELOC), the creditor’s only recourse is the property. For all other debt, (Refi’s with or without cash-out and HELOC withdrawals) the creditor has the option of a non-judicial foreclosure (which is the standard NOD followed by NOT and then trustee sale) or judicial foreclosure which can result in a deficiency judgement. There is also the issue of fraud in the application process. Credit granted based on a false loan application (over-stating income, for instance) can be considered fraud and may not be dischargeable. These types of judicial foreclosures became quite common during the early 90’s and then virtually disappeared. While I haven’t seen any significant increase yet, I suspect they’ll be showing up very soon.
There was, however, a recent bankruptcy court decision that may change much of this scenario. A bk court judge ruled that despite the fact that a borrower lied on his loan application, the lender relied solely on the value of the property, not the borrower’s credit or wherewithal to repay, and the debt was therefore dischargeable in bankruptcy.
Lenders have never been particularly logical in how they approach these things. I don’t suspect that will change.