Chapter 13

Lien Stripping to Reduce Mortgage Bills by St. Louis Bankruptcy Attorney Tobias Licker

This article introduces readers to “Lien Stripping” and how it could be used to eliminate second mortgages.

Today’s difficult residential real estate market has reduced the value of many homes around the country.This reduction in home values poses many problems for some St. Louis residents who have taken out a second mortgage against the market value of their homes. Often, the value of the home is less than the mortgage on their home.

The bankruptcy laws allow residents to perform a legal maneuver called “Lien Stripping” that could allow them to wipe out second mortgages that are hampering their ability to make ends meet. Lien stripping allows homeowners to use the Chapter 13 bankruptcy process to convert most second mortgages into an unsecured debt that can be discharged by “stripping”, or eliminating, the lien that secures the second mortgage.

The U.S Bankruptcy Code Features Strict Rules That Govern the Use of This Maneuver.

St. Louis residents who would like to use this legal maneuver to eliminate costly second mortgages must follow several rules that are described in detail in sections 506(a) and 506 (d) of the United States Bankruptcy Code.

Here is a brief explanation of these rules that can help you learn about some of the regulations that govern how debtors can use lien stripping during the bankruptcy process.

1. Second mortgages that are placed on primary residences are eligible for lien stripping.

2. The lien on a second mortgage can be stripped if the fair market value of your home is less than the value of the first mortgage.

3. Debtors who own a home with a fair market value that is even $1.00 greater than the total amount owed on their mortgages may not divide the value of a second mortgage between “secured” and “unsecured” interests.

4. Finally, you must use the Chapter 13 bankruptcy process in order to take advantage of this legal maneuver.

These Chapter 13 bankruptcy rules were established to prevent the creation of preferences among creditors that can delay a bankruptcy petition.

Here is a hypothetical example that can help you understand how this maneuver works:

Suppose you own a primary residence in St. Louis that is worth $150,000 that currently carries two mortgages against its value. Moreover, suppose that your first mortgage is worth $180,000. Finally, suppose your second mortgage is worth $60,000. Using the rules described above, you might be able to use lien stripping to convert the second mortgage into an unsecured debt that could be discharged during the Chapter 13 bankruptcy process.

A St. Louis Bankruptcy Attorney Can Help You Use Lien Stripping to Reduce Mortgage Debt.

We recommend to talk to a St. Louis bankruptcy attorney before you petition a bankruptcy court to use lien stripping. This is the case because state and federal bankruptcy laws feature complicated provisions when not properly applied can hamper your ability to use lien stripping in certain cases.

An attorney can help you understand these provisions in a way that is easy to understand. Our St. Louis bankruptcy attorneys are one of the most experienced attorneys in the region and offer a free consultation.

Please feel free to call our offices today for more information.


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