During the early 2000s, when home values were up and interest rates were down, an increasing number of people took out second mortgages on their homes. When the housing bubble burst and home values dropped dramatically around the country, many homeowners found themselves owing far more than their homes are worth. Oftentimes, the balance on the first mortgage alone exceeds the value of the property, leaving no equity to secure the second and/or third mortgages. When there is no equity securing a junior mortgage, homeowners can take advantage of lien stripping in Chapter 13 bankruptcy to get out from under the debt. An experienced Maryland and Washington DC bankruptcy attorney can assist you not only with lien stripping, but with the entire Chapter 13 process.
Lien stripping allows a Chapter 13 debtor to eliminate a mortgage creditor’s security interest in their home, which means the debt will be treated as a dischargeable unsecured debt in their Chapter 13 repayment plan. When you strip a junior mortgage lien, the lender receives the same percentage as other unsecured creditors, and any remaining balance can be discharged when the repayment plan is complete, if you are eligible for a Chapter 13 discharge. The percentage paid to unsecured creditors depends on a variety of factors, such as non-exempt assets, disposable income and the bankruptcy means test. It can range anywhere from 0 percent to 100 percent. A qualified Washington DC and Maryland bankruptcy lawyer can help you prepare an affordable repayment plan that effectively reorganizes your debt.
To be eligible for lien stripping, a junior mortgage must be wholly unsecured. For a second mortgage, that means the balance on the first mortgage must be more than the value of the home. For example, if your home is worth $150,000, and you owe $160,000 on the first mortgage, then there is no equity leftover to secure the second mortgage. For a third mortgage, the combined balance on the first and second mortgages must be more than the value of the home. A knowledgeable Washington DC and Maryland bankruptcy attorney can determine whether a junior mortgage is eligible for lien stripping and file all necessary paperwork to strip the lien.
If you have one or more junior mortgages that are wholly unsecured, you can strip the liens in Chapter 13 bankruptcy and emerge from bankruptcy liable only for the first mortgage, thus restoring value to your home. To learn more about reorganizing your debt through Chapter 13 bankruptcy, contact a dedicated Maryland and Washington DC bankruptcy lawyer today.