Lien Stripping: Chapter 13 and Chapter 7?

With today’s real estate values, you may find that your home is underwater, or that the value of your home does not come close to what you owe for your mortgage(s). In the past, the only way a debtor could get financial relief from paying for a second mortgage (often referred to as a lien strip) that was completely unsecured would be to file a Chapter 13 bankruptcy which is a three to five year process.  Although this is a great option for some debtors due to the many other benefits of Chapter 13, some homeowners were filing Chapter 13 purely for this reason, to strip the second mortgage.  Otherwise, filing a Chapter 7 would have been the best path for them.  Since 2013 new case law has made it possible to strip a second mortgage in a Chapter 7 bankruptcy – taking, at times, only six months to complete the process.

The benefit of a lien strip is that it can make homes that have become unaffordable, affordable again.  In a Chapter 7, stripping a second mortgage eliminates the obligation to pay since that mortgage becomes an unsecured debt.  You could end up saving hundreds of dollars a month, and tens of thousands of dollars while owning the property.

​The lien strip in a chapter 7 can also be used help you if you are behind on your Home Owner Association (HOA) dues.  While you would still owe new HOA fees as they become due, a lien strip would eliminate the arrearages on your HOA dues.  There are different consequences to stripping a second mortgage in a Chapter 7 than in a Chapter 13, and upon having a consult with an attorney, it can be determined which option is the right one for you.  You can contact our office to set up a free consultation.