Lien stripping is one way that people who file for bankruptcy are able to discharge their mortgages while still keeping their homes. Bankruptcy attorney Benjamin Ginter runs the Law Offices of Benjamin J. Ginter in Cranford, New Jersey. Here, he explains all about this process, and why you would have to file for Chapter 13 and not Chapter 7.
Yes, you can discharge your mortgage in a bankruptcy and still keep your home. The process is known as lien stripping. What happens as far as most states are concerned is that you cannot strip a first mortgage on your home. However, if you have a second or third mortgage on your house, and they are completely unsecured, you can make a motion to the court to have those liens basically treated as unsecured and wiped out.
This can only be done through filing a Chapter 13, not Chapter 7 bankruptcy. An example of this would be a person who has a house worth $300,000. They have a first mortgage of $350,000 and a second mortgage of $50,000. Based on those numbers, you can strip the $50,000 second lien, or second mortgage, because that is a claim that is completely unsecured.
In this case, the first mortgage basically encompasses the whole entire value of the house. And the second mortgage, or second lien, is not attached to anything; it is unsecured and you can have that discharged.
Secured Debt
Secured debt is a creditor’s claim that’s secured by a lien of some type in your property, either by your agreement or involuntarily such as with a court judgment or taxes. For example, a mortgage is a secured claim or a finance agreement for an automobile.
If you do not continue making payments, the creditor could take back the property. A creditor can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any specific kind of property, it can be money owed on a credit card, for example.
Get the Right Lawyer
Negotiating the bankruptcy minefield can be hazardous, and it is always possible to make the wrong decision, from filing the wrong chapter to missing a deadline. Hiring a qualified and experienced bankruptcy attorney is one way you can be confident that you are doing everything you can to increase your chances of filing a successful bankruptcy - and keeping your home while moving on with your life.
