The most important part of the lien stripping process is obtaining an accurate valuation of the property.  Most courts agree that the appropriate time for valuing the property is at the time of the Chapter 13 confirmation hearing, not at the time the bankruptcy case was filed.  This may be several months after you file your Chapter 13 case.  A professional appraisal and other evidence of the value of the property are necessary for successful lien stripping. 

Lien stripping may not require both debtors to file bankruptcy.  In a recently decided case in Michigan, a married couple owned property, but only the wife filed bankruptcy.  She then filed an adversary case against a lien holder to strip away an entirely unsecure second mortgage.  The lien holder attempted to join the husband to the lawsuit, but the bankruptcy court refused.  The court granted the wife’s lien stripping motion saying that, since there was no equity,  the bankruptcy estate had no interest in that property.  Under Michigan law (and in many other states) a married couple holds a home jointly as tenants by the entirety.  This is a special legal ownership status where each party owns an undivided whole of the property, as a single legal entity.  The bankruptcy court found that both spouses do not have to be included in the lawsuit even though both spouses receive the benefit of the stripped lien.  This case is currently on appeal. 

In today’s economy where many homes have lost value, lien stripping second mortgages in bankruptcy is becoming commonplace.  If you have a second mortgage and need bankruptcy relief, consult with an experienced bankruptcy attorney and discuss your options.  There are many ways to save your family home using the powerful federal bankruptcy laws.

For example, let’s say you purchased your home for $400,000, and obtained two mortgage loans. Today your home is worth $300,000 and you owe $305,000 on the first mortgage and $70,000 on the second. During a Chapter 13 bankruptcy case a bankruptcy court can strip away the second mortgage lien on your home because it is entirely unsecured by your home (i.e. the value of your home is not more than the first mortgage debt). The above example is only possible when the second mortgage is not secured at all by the value of the home. If the home is merely under-secured, lien stripping is not authorized. For instance, if the value of the home in our example is $305,001, then the loan is partially secured (by one dollar) and its second mortgage lien cannot be stripped.

By stripping the lien from your home, the second mortgage loan becomes an unsecured, non-mortgage debt. Unsecured debts receive the lowest payment priority during a Chapter 13 bankruptcy and typically receive pennies on the dollar, if anything. If you believe that Chapter 13 bankruptcy lien stripping could benefit you and your family, call me at 339-0222 so that I can advise as to whether you can strip off your second mortgage.