A Chapter 13 bankruptcy filing is a chance to tackle any liens that are on your property. One possible method is lien stripping. To qualify for lien stripping, you have to meet certain requirements. If you are considering lien stripping, here is what you need to know.
What Is Lien Stripping?
Your property, or home, is considered to be a secured debt. Secured means that the home is the collateral on a loan. In this instance, the loan is your mortgage loan. However, some homeowners choose to take out a second and third mortgage. The second and third mortgage are considered to be secured, but they are secondary to the primary loan.
The primary loan, or initial loan, for the home cannot be changed from a secured to unsecured debt. However, a second or third loan can. The process that is required to change the status of the loans is known as lien stripping.
Lien stripping changes the loans to unsecured. In a Chapter 13, you are required to complete a repayment plan to cover your secured debts. At the end of the repayment plan, the court dismisses or discharges your unsecured debts. In this instance, your second and third mortgages would be dismissed because they are no longer secured.
What If Your Bankruptcy Is Dismissed?
There are several terms that you must agree to in a Chapter 13 bankruptcy. For instance, you have to agree to follow a repayment plan, file all documentation on time, and attend credit counseling classes. Unfortunately, some people do not follow all of the requirements, which results in the court dismissing the bankruptcy.
If you were hoping on lien stripping to get rid of your secondary mortgages and your bankruptcy is dismissed, you lose all legal protections that the bankruptcy gave you. In this instance, the second and third mortgage lenders have the right to pursue legal action against you.
Depending on the circumstances of your bankruptcy, you might be able to refile your case. In some instances, the court sets time limitations on when the bankruptcy can be refiled. If that is the case for you, you can attempt to work out a resolution with the secondary mortgage lenders until you are able to refile your bankruptcy.
To learn more about lien stripping and how it can impact your financial situation, consult with your bankruptcy attorney. He or she can determine if it is the best action and help you explore other options.
For more information, contact Hoffman, Hamer & Associates, PLLC or a similar firm.Share