Chapter 13 Lien Stripping – the Kind of Stripping even your Spouse can approve of!
What is a lien strip? If you have two or more loans on your real property (typically many people have both a first and second mortgage), and if the second mortgage is “wholly unsecured” (meaning it is not secured by any equity in your property), then you have grounds to try to strip (i.e. eliminate) your second mortgage through a Chapter 13 bankruptcy proceeding. You will have to get your Chapter 13 plan confirmed, and you will have to make all your payments for 3-5 years and take the case though discharge in order to realize the effects of the lien strip. If you fail to complete the plan, the chapter 13 case gets dismissed for any reason, or you convert to a Chapter 7, the lien will not be stripped, and in essence, it will be revived, potentially with late fees and other charges being tagged on.
Note: The general rule is that you CANNOT strip a junior unsecured mortgage in a Chapter 7 as we have discussed in the United States Supreme Court decision in the Dewsnup case (discuss on this blog).
At any rate, if you are facing foreclosure, or just want to reorganize your finances with a Chapter 13 bankruptcy, call us to discuss whether a lien stripping (typically done through an adversary proceeding in the bankruptcy court) is right for you. We can be reached at (877) 276-5084.
