The good news for homeowners is that second mortgage liens can be eliminated witch Chapter 13 bankruptcy in a process known as lien stripping. A Second mortgage lien is usually a home equity loan that originated after the primary mortgage on the property. The rule that allows a lien to be stripped is that there is no equity that secures the lien in whole or in part. What that means is that they 2nd lien must be unsecured. The borrower must prove that the value of the home is less than the amount owed for the 1st mortgage balance.
Chapter 13 Bankruptcy
While both Chapter 7 and Chapter 13 bankruptcy allow for a discharge of certain debts, only the Chapter 13 filing makes it possible for debtors to eliminate their second mortgages lien and prevent any foreclosures. This is because, in Chapter 13, second mortgages liens are considered to be secured debts. A Second mortgages lien is only deemed unsecured if the homeowner has no equity in their home. In such a case, the second mortgage lien can be stripped away.
Bankruptcy Lien Stripping
If you want your second mortgage lien eliminated through Chapter 13 bankruptcy, the court requires a motion to strip the lien and a completed repayment plan, followed by a request for discharge. Unsecured junior liens are discharged with the approval of the court.
The Lien Stripping Process
A debtor has to file an application to have any junior liens stripped once they have completed their payment plan. The specific chapter 13 bankruptcy lien stripping process depends on the jurisdiction of the bankruptcy court. Some courts require hearings and additional motions to determine the fair market value of the home and the amount of equity in the property.
When Does Lien Stripping Work?
Chapter 13 lien stripping only works if the value of the first mortgage is greater than the value of the home. In other words, a lien strip is possible if the value of the home is less than the balance of the first mortgage. When that happens, any other debts are considered unsecured by the equity of the house, which makes the additional liens just like credit card debt.
Lien Stripping And Creditors
In the event that a second mortgage lien is stripped, you can ask your creditor to remove it from your credit history. Not all creditors are willing to comply with debtors’ requests when it comes to lien stripping. As a general rule, lenders of second mortgages can foreclose on properties if the debtor defaults on payments, so they may fight to preserve their claim.
We Help to Get Rid of Second Mortgage Liens
Our Los Angeles Bankruptcy Attorneys can handle all pre and post lien stripping processes. To find out if Bankruptcy can get rid of your second mortgage lien call us today. The first consultation is free!