Lien Stripping: The Ultimate Loan Modification

You have legal rights that may ultimately reduce your mortgage debt!

Lien Stripping is a very powerful and helpful tool within Chapter 13 Bankruptcy Law for homeowners in or near foreclosure. In many Chapter 13 cases we can completely eliminate 2nd & 3rd mortgages and Home Equity Line of Credit, this is called “Lien Stripping”. In order to do so the value of your home must be less than the amount you owe on your first mortgage.

Chapter 13 is a Debt Repayment Plan that consolidates (puts together) all your debts into a Payment Plan. The Plan gives you up to five (5) years to get caught up on back mortgage payments and other debts by repaying creditors what you can afford. “Lien stripping” (elimination of mortgages) means that upon successful completion of your Chapter 13, the mortgage company will have to remove the junior mortgage(s) from your property and the arrears on the mortgage(s) do not have to be paid back. This can be enormously helpful with keeping your house.

The reason behind this is that the lien stripped loan will be converted from a secured debt that is required to be paid in full to an unsecured debt through the bankruptcy. Unsecured debts are not required to be paid in full in a Chapter 13. In fact, most of the time in recent Chapter 13 cases, the unsecured debts are paid nothing. This is completely legal and is done with Court approval. This can be a great benefit for you as the junior mortgages can be removed and NOT paid according to your Chapter 13 Plan.

This reduces your mortgage debt and reduced your mortgage payments. What can be better than to eliminate mortgage debt? This is what we like to call the “Ultimate Loan Modification.”