If you have a second mortgage on your primary residence that is wholly unsecured, you are permitted, in a Chapter 13 Bankruptcy case, to remove or “strip” the lien. A second mortgage is “wholly unsecured” if, at the time of the filing of the Chapter 13 petition, the value of the residence is less than the amount of the first lien (i.e., primary mortgage).

Example: (a) the debtor's primary residence is worth $150,000, (b) the debtor has two mortgages, (3) the balance on the first mortgage is $160,00 and the balance on the second mortgage is $50,000. In this situation, the Chapter 13 debtor would be permitted to “strip” the second lien in the amount of $50,000, because the second lien is 100% unsecured.

Once a lien is stripped in this way, the underlying debt is then treated as general unsecured debt and paid at a typically much lower rate along with other general unsecured debt, such as credit card debt. When this occurs, the debtor typically realizes a substantial benefit.

If you have any questions about Chapter 13 lien stripping, please contact the Crystal Lake Bankruptcy Attorney Timothy Brown. We will be happy to provide a free consultation regarding Chapter 7 or Chapter 13 Bankruptcy.