Bankruptcy attorney Benjamin Ginter runs the Law Offices of Benjamin J. Ginter in Cranford, New Jersey. In his opinion, lien stripping is one way in which people who file for bankruptcy are able to discharge their mortgages while still keeping their homes. He talks here about why you would have to file for Chapter 13 and not Chapter 7.
Negotiating the bankruptcy minefield can be hazardous, and it is always possible to make the wrong decision, from filing for the incorrect chapter to missing a deadline. It is really worth hiring a qualified and experienced bankruptcy lawyer to deal with things. So that you can increase your chances of filing for bankruptcy successfully and make a new start in your life.
You can discharge your mortgage in a bankruptcy while still keeping your home. The process is known as lien stripping. In most states, you cannot strip a first mortgage on your home. However, if you have a second or third mortgage on your house, and they are completely unsecured, you can make a proposal to the court to have those liens basically treated as unsecured and wiped out.
This can only be done through filing for Chapter 13 instead of Chapter 7 bankruptcy. Let’s take an example of this. If you have a house worth $300,000, with a first mortgage of $350,000 and a second mortgage of $50,000, based on those numbers, you can strip the second lien $50,000, or the second mortgage, because it is completely unsecured.
In this case, the first mortgage basically encompasses the whole value of the house. And the second mortgage or the second lien, is not attached to anything; it is unsecured and you can have that discharged.
Secured debt is a creditor’s claim that is secured by a lien of some type in your property, either by your agreement or disagreement. For example, a mortgage is a secured claim or a finance agreement for an automobile.
If you do not continue making payments, the creditor could take back the property. A creditor can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any specific kind of property; it can be money owed on a credit card, for example.
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