Bankruptcy Lien Stripping (Chapter 7)

Posted on November 4, 2014 at 2:00 PM Comments comments ()

Chapter 7 Lien Stripping

As a legal document preparation service, we received calls where consumers want to strip liens off of their homes (2nd mortagage

Lien stripping for the most part is not allowed in a Chapter 7; however, they may be able to get it done if they file a Chapter 13 where one is allowed to strip the junior ​lien (if they qualify for a Chapter 13).

There is a recent case that states that one may remove a junior lien in a Chapter 7, if the loan is unsecured. Given the response of the debtee, it appears that they will fight any motion filed for such relief. A new ruling states, if the value of the home and the first mortgage break even so to speak, and there is no additional collateral value thereafter in the home itself, then the debt (2nd mortgage) is unsecured. Presently, the majority of US Courts are not adhering to the new decision regarding lien stripping in a Chapter 7 (only a few other states).