Lien stripping is a legal process by which you eliminate certain debts in bankruptcy. Often, a lien that is stripped or eliminated is a second mortgage on a house. The earlier, first mortgage will hold priority over a second or third mortgage, or lien. This means that the first mortgage gets paid first before the second mortgage. When a debtor, the person who owes a debt, strips a lien, it means that he or she is removing the lien from the property to which it is related. For example, a second mortgage would be eliminated from the real estate related to it and the second mortgage would become a standard debt unattached to any particular property. The bankruptcy attorneys at JRQ & Associates are experienced in stripping mortgage liens and can advise whether this is an option in your situation.
Lien stripping of subordinate liens, such as a second mortgage, can occur in bankruptcy in which the real estate is worth less than the amount of the first mortgage. Since the second mortgage will not obtain any payments from the sale of the real estate, it cannot be considered a secured debt since the home will be sold and its value passed onto the first mortgage. Since the second mortgage will no longer be a secured debt (one that is attached to some sort of collateral like a home or a car), a court could then have the debt eliminated in the course of bankruptcy.
The stripped liens are then considered no differently than most other unsecured debt, like credit card debt. These debts likely do not receive much, if any, money from bankruptcy courts. Once the bankruptcy case is closed, the lender for the stripped lien must remove that lien from the property, as well.
As soon as you file a Chapter 13 bankruptcy you generally will not be required to pay your second mortgage. But, the lien on your house will remain legally on the home until the bankruptcy case is closed. Only Chapter 13 permits lien stripping as part of the reorganization and payment plan. The other common personal bankruptcy, Chapter 7, in which an individual’s assets are sold off, or liquidated, does not permit lien stripping in this fashion.
A Chapter 13 bankruptcy case is generally settled through a long-term payment plan. The payment plan is created based on the income and financial liabilities that the debtor has at the time of filing. The debtor, along with the court, determines what monthly payments he or she can afford to make to creditors over the course of several years. Once the payment plan is satisfied then the debtor will have other debts discharged, or forgiven, and then the case will be closed.
The bankruptcy process can be complicated and should not be done alone. The bankruptcy lawyers at JRQ & Associates are experienced in all aspects of the bankruptcy process and can help you achieve the most ideal results. Call 312.561.5063 for a free bankruptcy consultation with one of our experienced bankruptcy attorneys.