Can't Afford the Debt From Your In-Law Suite or ADU? Start Here.

The first thing to establish — before any discussion of options — is the type of debt you are carrying. It determines what help is available and what actions could make your situation worse.

HELOC, second mortgage, cash-out refi: these are secured debts

If you funded the in-law suite or ADU with a HELOC, a second mortgage, or a cash-out refinance, the lender recorded a lien against your home when you signed. That makes it a secured debt — backed by your house in a legally enforceable way. The consequences of non-payment are not just a damaged credit score or a collection call. They can include foreclosure, even if your first mortgage is current.

This is the critical difference from credit-card debt, and it matters enormously for what you should do next. No debt-settlement company can negotiate away a lien on your home the way they settle unsecured balances. Any firm that implies otherwise — or that tells you to stop paying your HELOC so they can "negotiate" it — is misleading you and creating serious risk.

Step 1 — Contact your lender's loss-mitigation department, not general customer service

Every major mortgage and HELOC servicer maintains a loss-mitigation or home-retention department — the same infrastructure built during the 2008–2009 crisis. These teams have options that customer-service representatives cannot offer. Call the number on your statement or search your lender's website for "mortgage assistance" or "hardship." Ask specifically about:

• Forbearance or payment deferral — pausing payments temporarily and deferring the missed amounts to the end of the loan term
• Loan modification — a permanent change to the interest rate, repayment term, or monthly payment amount
• Repayment plan — a structured catch-up schedule that folds past-due amounts into future payments at an affordable level
• Interest-rate reduction — some servicers will temporarily lower the rate during a documented hardship

Document everything. Follow up phone conversations with a written email or letter summarizing what you were told. Get any agreement in writing before changing your payment behavior. Informal phone promises are not binding.

Step 2 — Use a free HUD-approved housing counselor

A HUD-approved housing counselor is free to you and trained specifically in mortgage and home-equity distress. They know what each major servicer actually offers, can help you prepare a hardship package that gets taken seriously, and can sometimes advocate directly with the lender on your behalf. Find a local counselor at HUD.gov or call 1-800-569-4287. This is free, not-for-profit help — use it before paying anyone for advice about a secured home loan.

Step 3 — Consider renting the ADU (if zoning permits)

This is one of the most direct levers available. If the in-law suite or ADU has a separate entrance and basic amenities, renting it can generate $800–$2,000+ per month in many markets — often enough to cover the debt payment entirely. Before listing:

• Confirm local zoning allows ADU rentals and that required permits are in order
• Check your mortgage and HELOC terms for any restrictions on short-term or long-term rental of the secured property
• Consult a tax advisor about how rental income affects your return (depreciation, expenses, and passive-activity rules apply)
• If the suite was built for a parent who has since moved to a care facility or passed away, this option may be available sooner than you think

Even partial rent — a student, a remote worker, a younger family member — can be the difference between default and staying current while the loan restructures.

Step 4 — Offset caregiving costs with programs you may not know about

Many families who built an ADU to bring a parent home are simultaneously covering care costs out of pocket. Reducing those costs can free the cash flow needed to service the loan. Several programs can help, often at no cost:

• Medicaid Home and Community-Based Services (HCBS) — most states fund personal care, respite care, adult day services, and sometimes home modifications through Medicaid waiver programs. Eligibility is income- and needs-based; contact your state Medicaid office or a local aging services navigator to apply.
• VA Aid and Attendance — a pension supplement for qualifying veterans (or surviving spouses) who need help with daily living activities. Application is through the VA; a VA-accredited claims agent can assist for free.
• National Family Caregiver Support Program (NFCSP) — funded through the Older Americans Act, this provides respite care, training, and support services through local Area Agencies on Aging.
• Eldercare Locator — call 1-800-677-1116 or visit eldercare.acl.gov to find local services, benefits, and caregiving support in your area. Free, federally funded.

For a deeper look at the caregiver debt picture — including what to do when unpaid caregiving leaves you with your own unsecured balances — see our guide on caregiver debt relief.

Step 5 — Explore refinancing if your equity and credit still support it

If you are not yet in default and your home has appreciated since the ADU was built — which is common, since a well-permitted ADU typically adds value — refinancing may be possible. Options include:

• Refinancing the HELOC or second mortgage into a new fixed-rate home equity loan at a lower payment
• Consolidating the HELOC into a new first mortgage through a cash-out or rate-and-term refinance
• Converting a variable-rate draw into a fixed-repayment loan through your existing lender

These paths require qualifying credit and income. If your financial situation has deteriorated since the original loan, your options may be narrower — but check with your current servicer and at least one other lender before concluding this window is closed.

The separate question: unsecured debt from the same project

Many ADU builds involved a mix of financing. If you also used unsecured debt — credit cards, store accounts, or an unsecured personal loan — to cover contractor bills, appliances, or cost overruns, that portion of your debt is handled very differently from the secured loan.

Unsecured credit-card and personal-loan balances are eligible for debt settlement once you are significantly delinquent. Settlement typically means paying a negotiated portion of the balance (not the full amount) over 24–48 months. The trade-offs are real and not guaranteed: your credit score will drop significantly; any forgiven amount is typically reported on Form 1099-C and treated as taxable income in the year of settlement; and settlement programs do not work for everyone. For a full picture of how settlement works and its credit impact, see our guides on how debt settlement works and whether it hurts your credit.

For a broader look at paying off renovation-related secured and unsecured debt, see how to pay off home renovation debt.

Keep the two tracks separate. The HELOC or second mortgage requires lender-direct action and a HUD counselor. The credit cards and personal loans, if delinquent and substantial, may qualify for a settlement program. The right help for each is different.

What not to do

• Do not enroll a HELOC, second mortgage, or cash-out refi in a debt-settlement program. No legitimate settlement company can negotiate a secured lien; those that imply otherwise collect monthly fees while the lender proceeds toward foreclosure.
• Do not stop making secured payments without a written forbearance agreement. Unlike credit cards — where stopping payments can be a prerequisite for settlement — stopping HELOC payments starts a foreclosure clock. Get written approval before changing your payment behavior.
• Do not ignore lender notices. Every formal notice (notice of default, notice of acceleration) carries a response window. Missing that window eliminates options.
• Do not borrow new debt to service the ADU loan. Taking a cash advance or personal loan to keep the HELOC current extends the crisis and typically adds high-rate debt on top of it.

When bankruptcy may be relevant

If the total debt picture — including the secured ADU loan, unsecured cards, and other obligations — is genuinely unmanageable, Chapter 13 bankruptcy may offer a structured repayment plan that lets you catch up on secured debt over three to five years while potentially discharging qualifying unsecured balances. Chapter 7 may discharge unsecured debt but does not eliminate secured liens, so it does not directly solve the HELOC problem. Consult a licensed bankruptcy attorney for an honest assessment of whether either chapter fits your situation; many offer free initial consultations.

The path forward for a family that borrowed to create a multigenerational home is real but requires separating the secured from the unsecured, acting on the HELOC through your lender and a HUD counselor, and — only after that — evaluating whether unsecured card balances qualify for relief. Start with the lender call and the housing counselor. The secured debt cannot wait.