When you file a Chapter 13 bankruptcy case, there are many benefits available. Many debtors obtain a signficiant financial benefit by a process called as “lien stripping.” If you have a second mortgage on your home and your house is not worth as much as it was when the second mortgage was added, you may be allowed to strip the lien from your home.
When a home does not have sufficient equity to support the inferior mortgage loan, a Chapter 13 debtor can argue that the second mortgage creditor should be treated as an unsecured creditor. For example, if you owe $150,000 on your first mortgage and $25,000 on your second mortgage, but your home is only worth $140,000, there is insufficient equity to support the inferior loan.
The Chapter 13 plan of reorganization sets forth how you intend to pay your creditors. It is important to understand that the plan is not required to pay 100% of the debt owed to unsecured creditors. Typically, unsecured creditors are paid merely pennies on the dollar owed, if anything at all.
Your second mortgage holder may object to the lien stripping, so an appraisal of your home may be necessary to support your argument that the value of the house has decreased. While appraisals can be costly, it is worth it if you are able to reduce your second mortgage payment to pennies on the dollar owed! This process has saved numerous debtors thousands of dollars.
If you are considering filing for bankruptcy protection and you have a second mortgage on your home, it is important to discuss the option of lien stripping with your attorney.
If you are considering filing for bankruptcy protection, let us help. We understand how important your bankruptcy case is to you, and we will handle it with the discretion and dedication that have become our calling cards. Contact the Milwaukee bankruptcy attorneys of the DeLadurantey Law Office, LLC today by calling 414-377-0518.