The Bankruptcy Code recognizes that a lien is only secured to the extent of the value of the property.  If the amount of the lien is more than the value of the property, the debt is separated into two parts: secured and unsecured.  During a Chapter 13, the amount of the loan that exceeds the value of the vehicle can be stripped away. 

For instance, if your vehicle is worth $10,000, but the secured auto loan balance is $13,000, the bankruptcy will separate the auto loan into a secured debt of $10,000 and an unsecured debt of $3,000.  The secured portion must be paid in full during the Chapter 13 case, and the unsecured $3,000 amount will be paid along with other unsecured creditors (usually pennies on the dollar, if anything). 

Another potential benefit to the Chapter 13 debtor is that the contract terms can be modified during the Chapter 13 repayment period.  In some cases the repayment period can be lengthened or contract interest rate can be lowered by the bankruptcy court.  Changing the contractual terms can make a significant difference in the ability of the debtor to repay the debt. 

If you are struggling with debts you cannot pay and own a vehicle that is worth less than you owe, you may be eligible to reduce your principle and your monthly payment on your vehicle loan.  Speak with an experienced bankruptcy attorney and discuss how a Chapter 13 bankruptcy can help you reduce your debt and make your finances work for you and your family.

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.