Lien Stripping in Chapter 13 means getting rid of your junior mortgage. In a Chapter 13 bankruptcy case it may be able to eliminate your second mortgage. That includes your home equity line of credit (HELOC). This option exists for some homeowners facing bankruptcy. Especially in in California, where many homes values are still “upside down.” This might apply to you if you are considering bankruptcy to deal with a pending mortgage default or foreclosure.
If you are going into bankruptcy, find out if you are eligible for lien stripping
Called “Lien Stripping,” you hit the jackpot if you are eligible. The process of removing a HELOC or other lien on your property is one of the tools that a Los Angeles Bankruptcy Lawyer knows could be a game-changer for your financial situation. In order to remove a second mortgage or HELOC, your situation must meet certain legal requirements. For example, the value of your home must have depreciated to the point where it is worth less than what you owe on your first mortgage. You must also meet other eligibility requirements for bankruptcy. An expert Los Angeles Bankruptcy Lawyer can determine if you are eligible for a case.
Lien stripping example
Here’s a simple example that might allow for the removal of a HELOC in Chapter 13. If you owe $500,000 on your first mortgage and your home is worth less than $500,000, then you might be able to “strip” or remove the HELOC in the second mortgage position. But it the value of your home is more than the amount you owe on your first mortgage, you will not be able to remove the HELOC. Either way, Chapter 13 is a financial option that may help you take a closer look at ways that you can afford to stay in your current home.
A Chapter 13 bankruptcy is not a quick process and it requires discipline on your part to make it happen. If your first mortgage is in default, you will have to commit to a plan to pay back the defaulted amounts over a period of time. Yet Chapter 13 offers many financial tools that Chapter 7 bankruptcy does not. These tools could make it more financially more appealing to stay in a home that is currently upside down.