If you’re saddled with debt that you’re unable to pay, Chapter 13 bankruptcy can help you settle your obligations and give you 3 to 5 years to pay off some types of debt. One of the provisions under bankruptcy law makes it possible to get rid of second mortgages and other non-primary liens on your property. This process is called lien stripping. Read on to find out how it works.
What Lien Stripping Does
Lien stripping is a way for people who owe more than the value of their home with second, third or fourth mortgages to get debt relief. With a lien stripping arrangement, the court orders the second or other non-primary lien holders to remove the lien from their home. You’re still responsible for the debt, but it becomes unsecured debt that you make payments toward settling along with all of your other obligations. Once the obligations are classified as unsecured debt, you may not have to pay the entire amount but this will depend upon the amount of your monthly income on the date you file. The lien is not removed entirely until you finish your Chapter 13 plan and your bankruptcy is completely discharged. If for some reason your bankruptcy is dismissed before you finish the plan, you will still be responsible for your mortgage and the lien will not be removed.
Qualifying for Lien Stripping
In order for you to qualify for lien stripping through Chapter 13, you must owe more than your home’s value in mortgage debt. The value of your home will be determined through an appraisal. Then, the total amount of all of the money that you owe on liens against your home will be added up. The sum total of the debt must be greater than the value of your home.
For example, if you have a $100,000 first mortgage, a $50,000 second mortgage and a $30,000 line of credit that is maxed out, you would owe a total of $180,000 on your home. If your home turned out to be worth only $100,000, both the second and third liens could be stripped. If your home was worth $150,000, only the third lien would be eligible for stripping. Should your home be valued at $200,000, you would be completely ineligible for relief through debt stripping.
To learn more about Chapter 13 bankruptcy and lien stripping in Ohio, contact the law office of Attorney Robert A. Boyd in Willoughby at 440-918-1733.