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Issues In Chapter 13 Bankruptcy: Lien Stripping

Many prospective Chapter 13 Bankruptcy clients commonly ask about lien stripping. Lien stripping is a process available to some Chapter 13 debtors by which a second (and/or subsequent mortgages) can be stripped off real estate, leaving you with one mortgage at the end of the process.

Though lien stripping has been practiced for a few years, it is a still a very new, and gray area of bankruptcy practice. There are many unknowns surrounding the process, but the purpose of this post is to discuss how the process works rather than the uncertainty surrounding it.

In order to be considered a candidate for lien stripping there are many conditions that must be met. First, you must have more than one mortgage. Second, the market value of your home must be less than the amount owed on the first mortgage. Third, you must have the ability to file and sustain a Chapter 13 bankruptcy, which means you must have stable employment and be able to make monthly payments to the Chapter 13 Trustee.

If you meet the requirements above, you are able to submit a Chapter 13 plan of repayment that provides for satisfaction of the second mortgage upon completion of the payment plan. You would also file a separate motion or complaint asking for the court to issue an order requiring the lender to provide the said satisfaction upon completion. Upon satisfaction of the judgment, the end result is that you would only have one mortgage remaining, and although by the nature of the process, there would still not be any equity in your home, the idea is that you would be better able to afford the home and may be able to more quickly realize equity without the second mortgage.

Please note that lien stripping is a very fact sensitive process and, as such, each case must be carefully evaluated to determine whether it is possible. If you think you might meet the above criteria, or would like to find out if you do, please contact Running Law Firm to set up your free consultation to see how we can help.