If your home value has gone down since you purchased it, you can still get rid of the second mortgage by filing for bankruptcy under chapter 13. Under chapter 13, by using the benefits of Lien Stripping, you can get rid of your second mortgage lien on our house.
Understanding Lien Stripping
Lien Stripping is a tool that can be used under chapter 13 bankruptcy, in situations where your mortgage value exceeds your House value. In such situations, with the jurisdiction of the court, the second and the third mortgage can be stripped off (removed) preventing any kind of foreclosure. The court then converts this secured mortgage into an unsecured debt thereby removing the lien from the property.
What is the process of lien stripping?
A mortgage can be stripped off only in circumstances where your 1st mortgage exceeds the actual Market value of your home. So in this circumstance, your second and third mortgage will be stripped off. Example – The value of your home is $200,000. 1st Mortgage is worth $250,000. 2nd Mortgage is for $50,000. In this case, since your 1st mortgage is more than the value of the house, your 2nd mortgage will get stripped off. In case there was a 3rd mortgage, that too would get stripped off.
However, if your 1st mortgage does not exceed the total value of the house, then the 2nd mortgage will not be waived off. Only 3rd and subsequent mortgages will be waived off. Example. If your house is worth $275,000. 1st Mortgage is for $250,000, 2nd mortgage is for $50,000 and 3rd Mortgage is for $30,000. In such a situation since your 1st mortgage is not exceeding your house value, you will not be stripped off the 2nd mortgage. However, a combined balance of 1st and 2nd mortgage ($300,000) is greater than the House value which is $275,000, therefore your 3rd mortgage lien can be stripped.
When do I get rid of my second mortgage?
The second mortgage will get stripped off when you file for bankruptcy under chapter 13. Under this, the stripped lien will be treated as non-priority unsecured debt which does not have to be paid off if you complete your repayment plan.
However, if you do not get a discharge or your case gets dismissed in between (before you pay off your dues under the repayment plan), then in such a circumstance, the lien will not be stripped and you will need to pay it off in full. It is important to note that the lien from your house will only be removed after you have completed your repayment plan.
Chapter 7 – Lien Stripping
You can only use the benefit of lien stripping if you file for bankruptcy under Chapter 13. However, under certain exceptional cases, you can also use this benefit if you file under chapter 7 – That is if you live and File for bankruptcy in these States – Florida, Alabama, and Georgia.
To know more details on how to get your lien stripped and get max benefit out of this rule, book an appointment with experienced attorneys at – 888-297-6203