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When a person is considering filing for bankruptcy they typically have significant debts. Often, a lien or multiple liens will have been placed on the debtor’s house, other real property, or personal property as collateral for a debt. Through a practice referred to as “lien stripping,” Chapter 13 Bankruptcy can be a useful tool for getting rid of junior liens, which can help the debtor with a fresh start after their bankruptcy. If you have a second mortgage or have property with multiple liens, a San Francisco Bay Area Bankruptcy Attorney may be able to help you strip the junior liens from your property.
How Does Lien Stripping Work?
Lien stripping allows a debtor to get rid of wholly unsecured junior liens on their property. Often, the property at issue is a house or other real property, because these types of property are generally the most valuable property in the debtor’s possession.
It is useful to think of lien stripping as a four-part process.
- First, the debtor will need to file for Chapter 13 Bankruptcy;
- Second, the debtor will need to file a motion or an adversary proceeding complaint during their bankruptcy and ask the bankruptcy court to strip their lien. Essential to this is being able to show that the lien is wholly unsecured.
- Third, if the bankruptcy court agrees with the debtor, the court will strip the lien from the collateral property;
- Fourth, because the underlying debt is now not secured by a lien, the debtor may be able to get rid of the debt at the termination of their Chapter 13 Bankruptcy.
What Kinds of Liens can be Stripped?
The most common type of lien to be stripped is a second mortgage. Because of the recent housing market, it is not uncommon for a debtor to have an underwater first mortgage. This means that they owe more money on their first mortgage than the house is worth. If that debtor also has a second mortgage, the second mortgage may be unsecured by any value in the house and thus eligible to be stripped.
The same logic is true for many junior liens in Chapter 13 Bankruptcy. Here is a list of common junior liens that may be able to be stripped in Chapter 13 Bankruptcy:
- Second or third mortgage;
- Home equity line of credit;
- Home equity loan;
- A secondary lien taken out as security for a loan;
- Judgment lien;
- Non-purchase money lien on a car or other motor vehicle; and
- Other junior liens.
Under Which Bankruptcy Chapter can Liens be Stripped?
Typically only a Chapter 13 Bankruptcy is used to strip liens. In a Chapter 13 Bankruptcy, a debtor is given three to five years to pay off a certain amount of their debt. During this time, they are also protected by Bankruptcy’s automatic stay protection while they catch up on their mortgage payments.
After they have completed their Chapter 13 Bankruptcy payment plan, the debtor is able to rid of their unsecured debts. Because lien stripping turns a secured debt, like a mortgage, into an unsecured debt, Chapter 13 Bankruptcy is able to help a debtor get rid of these debts.
Although courts in some other states have recently held that lien stripping may be available in a Chapter 7 Bankruptcy, this is not currently the case in California. The United States Supreme Court has been petitioned to answer this question. Bank of America, N.A. v. Sinkfield.
Contact a Chapter 13 Bankruptcy Attorney for Help with Lien Stripping
If you are considering declaring bankruptcy and would like to be able to get rid of liens on your property, the Law Offices of Melanie Tavare might be able to help. To speak with an experienced Lien Stripping Attorney in the San Francisco Bay Area, call us at 510-255-4646 or contact us online. Our Attorney has experience helping debtors with underwater mortgages get a fresh start by having liens on their property stripped in Chapter 13 Bankruptcy.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
"Melanie is the best she very responsive and helpful throughout the process everything was taken care of smoothly. If you are thinking of going through bankruptcy she is the best attorney for you. I will forever be grateful having the chance to work with her. She is very honest too."
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"Choosing to work with Atty. Melanie has been one of the best decisions I've ever made. She was a very patient professional to work with and attentive while providing valuable solutions to all of my concerns. If you are searching for of an Attorney who is knowledgeable, transparent, and diligent - well that's Atty. Melanie."
"What I liked about working with Melanie was how prompt and easy to work with she was. She made the process clear and understandable with as little stress as possible. I would work with her again and recommend her to others."