If you have little or no equity in your home and are in danger of losing it to foreclosure, Chapter 13 may offer a solution. Under Chapter 13, second mortgages, third mortgages, and even some judicial liens and judgments can be “stripped” from a debtor’s primary residence if the debtor qualifies under bankruptcy law. There are strict rules to follow, and each situation is different, so it is important that you consult an experienced Chapter 13 bankruptcy attorney before deciding on a course of action.
When a second or third mortgage, or lien, is “stripped” from your home, it does not instantly vanish. Rather, it is converted into unsecured debt, which means it will be included with all your other unsecured debts in your Chapter 13 three-to-five year repayment plan. As a practical matter, most Chapter 13 bankruptcy plans only require repayment of a small percentage of what is owed to all unsecured creditors. After you have made all payments required by your plan, any unsecured debt remaining is forgiven.
“Lien stripping” begins at the start of a Chapter 13 case. [Read more...]