Lien Stripping in a Chapter 13 Bankruptcy

What is a Chapter 13 Bankruptcy?

A Chapter 13 Bankruptcy is a reorganization of your debts resulting in a payment plan that lasts 3-5 years. Your monthly plan payment will be determine by taking deductions and reasonable expenses out of your monthly income. The leftover amount is known as your “disposable monthly income.” Once you finish your monthly payments, your case is eligible for discharge.

What is lien stripping?

Lien stripping is your opportunity to strip any additional loan or lien from your mortgage,  Whereas, a great tool for removing other liens from your property is through a Chapter 13 bankruptcy.  The lien is stripped in a CH 13 through the bankruptcy discharge.  Therefore, using bankruptcy as a mechanism to remove a second mortgage on your home is a great solution.

What are the requirements for stripping a lien?

Only a junior lien can be stripped, meaning the balance is lower than your first mortgage. You will need to file a lien stripping motion with the court in addition to your bankruptcy petition. You also must owe more on the home than it is worth. If you have sold the home, you can’t have funds available to pay the second mortgage. Lien stripping is not available in all states, but it is available in Nevada.

Lein stripping in a Chapter 13 bankruptcy infographic

How is stripping a lien beneficial for me?

Lien stripping comes with the obvious benefit of discharging additional mortgages beyond your first. If the balance on any secondary mortgages is higher or about equal to your unsecured debts, it will be worth your time to file a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy.

What liens can you strip in a Chapter 13?

Stripping a Lien in a chapter 13 bankruptcy is one of the many benefits that you can be advised from our Vegas debt relief team.  Therefore, you can strip liens resulting from secondary mortgages on your home. Additionally, you can strip liens on a third, fourth, etc. mortgage. Hypothetically, as long as the balance on the secondary mortgages is higher than your first mortgage, and you owe more on the house than it is worth.

What happens to liens that are stripped?

Once a lien has been stripped, it changes from a secured debt to an unsecured debt. This means it can be discharged along with your credit cards, medical debts, etc. You must complete your payment plan for this to occur.

Can I get rid of a second mortgage in a Chapter 7 bankruptcy?

No. Lien stripping is not usually available in a Chapter 7 bankruptcy. A better plan would be to file a Chapter 13 bankruptcy if you have an eligible junior lien you’d like to discharge.

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