What You Need to Know about Chapter 13 Lien Stripping

If you are thinking of filing for Chapter 13 bankruptcy and have a second mortgage on your property, you should understand the process of lien stripping. Almost unheard of to people unfamiliar with bankruptcy law, lien stripping has become more popular due to factors surrounding the current housing market.

In Chapter 13 bankruptcy, you will come up with a payment schedule based on your income in order to eliminate your outstanding debts. The first debts affected by your payment schedule will be the secured ones, which are the debts with collateral attached to them. Home loans, car loans and other property that can potentially be repossessed fall under this category.

Lien stripping is the process of forgiving debts that are not usually eligible to write off. Your second mortgage is a secured debt, but when you utilize lien stripping, the debt becomes unsecured and thus dischargeable.

Examples of Chapter 13 Lien Stripping

Second mortgages and other junior liens can only be stripped if the amount of your senior liens exceed the market value of your property. For example: if your house is worth $150,000 and you have both a $175,000 mortgage and a $25,000 second mortgage, because your first mortgage exceeds the value of your home, you can strip the second mortgage.

When your junior liens are stripped, they will remain present until you pay off your Chapter 13 repayment plan. At that point, the junior liens will be eliminated. If you wish to know more about Chapter 13 lien stripping, speak to a bankruptcy attorney.

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