What is Lien-Stripping in Bankruptcy?

Individuals with more than one mortgage on their home who are struggling to make ends meet should consider filing a Chapter 13 bankruptcy case. Personal bankruptcy is the most comprehensive and effective means for dealing with all of your debt. When it comes to a second or third mortgage, it is possible to use the “lien-stripping” process to eliminate a significant amount of debt as well as remove a mortgage lien from your home.

If your house does not have sufficient equity to cover the inferior mortgage loans on it, you should contact us to discuss filing a Chapter 13 (and in some states a Chapter 7). Lien-stripping occurs when a debtor argues that a second or third mortgage should be treated as unsecured debt since the home does not have sufficient equity to support the inferior loans. Under a Chapter 13 repayment plan, only a portion of unsecured debt is paid. In fact, many debtors pay 0% of their unsecured debt. This could save you from having to repay thousands of dollars!

Consider this example: If your first mortgage loan is $250,000 and your second mortgage is $25,000, but your property is only valued at $245,000, your home does not have adequate equity to support the secured nature of your second mortgage loan. As a result, if your second mortgage is treated as an unsecured loan, you could potentially discharge or eliminate $25,000 worth of debt.

Lien-stripping can be complicated, but we are here to help.  If you are considering filing a bankruptcy and you need help determining which type of filing would be best for you or if you can take advantage of the lien-stripping process, contact Fitzgerald Campbell to schedule an appointment. We do not offer just one debt relief option, we don’t push you in one direction. If bankruptcy right for you, we will tell you. If it’s not, we will tell you that. If bankruptcy is your get out of debt plan, it needs to be done right. It needs to be in the hands of experienced lawyers who have been there before. Contact us today!