A lien strip allows a debtor to convert a secured debt (i.e., a second mortgage for purposes of this blog) into an unsecured lien and, thus, file to “strip” or discharge the lien. In our current economy, most everyone would like to do a lien strip on their property as the real estate market has plummeted. However, lien stripping works only in narrow circumstances.
First, in order to lien strip, the debtor’s home must be encumbered by more than one mortgage, at least, a first and second mortgage. Second, the value of the debtor’s home must be less than the amount owed on the first mortgage. Third, assuming the second mortgage can be stripped, the debtor must be able to afford to continue paying for the first mortgage. Finally, the debtor will need to have a sufficient amount of monthly disposable income to fund a Chapter 13 repayment plan.
Generally, lien stripping will require the debtor to file for Chapter 13 bankruptcy relief and pay into a repayment plan for up to 5 years. The repayment plan will pay a portion (up to 100%) of the debtor’s debt, including unsecured loans such as the second mortgage (without interest) that is to be stripped.
Bankruptcy planning, especially determining which chapter for relief to file, is difficult. Chapter 13 plan require many hours of proper planning and case preparation, and therefore should not be done without the assistance of an experienced bankruptcy attorney. As a highly skilled bankruptcy attorney, I make it my goal to provide each client dedicated the time and experience to assist clients with their bankruptcy filing.