Bankruptcy can be challenging, particularly if your finances are complicated. For those with second mortgages or home equity loans, it's only natural to wonder what will happen to that debt if you file. In some cases, you may be able to remove a second mortgage from your home in a process known as lien stripping. We'll break down the details to see if this is an option that will work for you.

Debt can be overwhelming, but the Craig Black Law Firm is here to help. When you call my office, you'll speak directly to me, and I'll provide personalized help to fit your needs. If you're considering filing for bankruptcy, give me a call at 678-888-1778 or fill out this confidential contact form, and I'll reach out to you.

What Is Lien Stripping?

Lien stripping is an extra benefit offered through a Chapter 13 bankruptcy filing. It's only available to borrowers who are “underwater” in their mortgage, which means they owe more than the home is currently worth.

For example, you may owe $200,000 on your first mortgage and $50,000 on a second mortgage, but home values have dropped, and it's now only worth $190,000. In that case, your second mortgage would be “unsecured” since your home was used as collateral for that second loan. Through lien stripping, the court removes the second loan and its attached lien from your home and converts it to unsecured, non-priority debt, treating it like credit card balances and medical bills.

Qualifying for Lien Stripping

Not every bankruptcy filer will qualify for lien stripping. First, it only applies to Chapter 13 bankruptcies. You'll also need to demonstrate that your home is worth less than what you owe on the first mortgage. Then, you'll need to successfully complete your Chapter 13 payment plan, which will take three to five years.

Lien stripping can provide some much-needed relief for homeowners dealing with overwhelming debt. That second loan will be combined with your other debts into your payment plan, which means some of the balance may be discharged at the end of the payment period.

However, perhaps the biggest benefit of lien stripping is that it removes the second lien on your residence. That means the lender can't foreclose on the property for non-payment. You'll simply need to pay your primary mortgage and make on-time payments on your payment plan.

How the Craig Black Law Firm Can Help

Filing for Chapter 13 bankruptcy can help you get a handle on your finances while also keeping your assets. But if you own a home, you likely have concerns about staying in that residence. Lien stripping can help ease those worries while you work on your payment plan.

If you're considering filing for Chapter 13 and you have a junior mortgage on your home, I can answer any questions you have. Give me a call at 678-888-1778 or complete this contact form, and I'll be in touch.