Lien Stripping in Bankruptcy: Eliminate 2nd Mortgage
Liens can be stripped off of the assets in Chapter 13 when there is not enough equity in the asset, after deducting senior liens from the property’s current market value, to secure the lien
Lien stripping can be used to make judgment liens and tax liens unsecured in whole or in part, where the lien exceeds the value of the debtor’s property.
Section 506 of the Bankruptcy Code acknowledges that a lien is only secured to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured.
Eliminate 2nd Mortgage?
Even mortgages can be stripped down to the value of the collateral, with the exception of the first mortgage of the debtor’s residence. Unfortunately Congress has thus far failed to change to bankruptcy law to allowing the modification of first mortgage of the Debtor’s home. If the real estate is rental property or commercial property, which is worth less than the mortgage balance,
CHAPTER 13 BANKRUPTCY CAN…
- REDUCE THE PRINCIPAL BALANCE & REDUCE THE INTEREST RATE
- ELIMINATE 2ND MORTGAGE OR THE HOME EQUITY LOAN ON YOUR HOME, IF THE VALUE OF THE HOME IS LESS THAN THE FIRST MORTGAGE.
This is a beneficial to people who have suffered from having their property go down in value in the current Michigan real estate market. This will eliminate the 2nd mortgage and home equity loans on your home taken when the real estate market was better than it is now.This “lien stripping” option can be used when the property is worth less than the amount owed (commonly referred to as “being upside down”).
Tax liens can be stripped off in reorganization proceedings (Chapters 11 and 13) to the extent that the lien does not attach to equity in property. Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions; if the tax is dischargeable in the Chapter 7, the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. Payment of that sum entitles the debtor to the release of the lien.
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