Lien stripping in Chapter 13 bankruptcy offers a special chance to permanently remove voluntary mortgage liens on real estate.
The general norm in bankruptcy is that liens pass through bankruptcy unaffected by the bankruptcy discharge. Lien stripping is an exception to this rule.
The exemption for house mortgages
If there is absolutely no value to which the lien links during a period of declining real estate values, Chapter 13 gives debtors the opportunity to permanently discharge mortgage liens on their houses.
It is illegal to alter or change a lien when it relates to a mortgage on the debtor’s primary residence under bankruptcy law. The bankruptcy legislation was amended in the 1980s to include that security for mortgage lenders.
When there is absolutely nothing on which the lien can attach, there exists an exception to the exclusion. Consequently, even just a voluntarily placed lien on a primary house may be removed.
If you happen to be around Dallas or Los Angeles area and need the services of an experienced bankruptcy attorney, you may call Recovery Law Group at (888-297-6203). Go to the following link to schedule an online appointment or learn more: https://recoverylawgroup.com/bankruptcy/
Not in your house
The legislation is different and less onerous if the property is not your principal residence. The mortgage debt may be divided between an unsecured claim and a component that is secured by value under a restructuring plan. That is known as a splitting.
Compare the removal of liens to the avoidance of liens under Section 522. If the property would otherwise be exempt, only judicial liens, such as judgement liens, can be avoided there.
In reorganisation procedures (Chapters 11 and 13), tax liens may be discharged to the extent that they do not attach to equity in real estate. The real value of the available collateral that may be used to secure the lien may also be “crammed down” to them.
Tax liens are “statutory” liens rather than “judicial” liens, hence it is not possible to escape them in Chapter 7 on the basis that they affect exemptions.