What Is Lien Stripping?
With the housing crash in 2008, many people found themselves “underwater” on their mortgages, which means the amount of the mortgage loan is higher than the value of the property that secures the mortgage. In addition, many people had taken out second or third mortgages because of low interest rates and the culture of spending in the early 2000’s. Over the past years, many homeowners have been unable to keep up with high payments and have faced foreclosure. While people may look into bankruptcy to help resolve their financial issues, secured mortgage debt is not dischargeable in either Chapter 13 or Chapter 7 bankruptcy.
In certain situations, you may be eligible for a process called lien stripping, which can result in a discharge of your second or third mortgages and a removal of the lien on your property. The following is some basic information about lien stripping.
Discharging Mortgage Debt Through Lien Stripping
When you file for Chapter 13 bankruptcy, your attorney will examine your financial situation to determine whether you are eligible for lien stripping. In order to strip a lien, your property must be worth less than your primary mortgage. In this situation, any additional mortgage loans – commonly referred to as “junior liens” – transfer from secured debt to unsecured debt. This is very important because unsecured debts can be discharged at the end of a Chapter 13 bankruptcy. This means that once you successfully complete your court-ordered payment plan, you will no longer have any obligations to pay on those junior mortgages.
Once you are able to discharge your second and/or third mortgages as well as any credit card balances, medical bills, personal loans, and similar debts, you should have enough cash freed up to stay on top of your primary mortgage. In this way, lien stripping can be extremely valuable in allowing you to keep your home. If you have multiple mortgages, your bankruptcy attorney should explore the possibility of lien stripping and may recommend a Chapter 13 bankruptcy based on your eligibility for lien stripping.
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At the Law Office of Michael Alan Siddons, we help clients throughout New Jersey, Pennsylvania, and Maryland find the legal solutions that work best for them to resolve their debt problems. We can provide information on bankruptcy and other debt relief options, so please call our highly experienced bankruptcy attorney for a consultation today.