A process known as lien stripping can remove a second mortgage for individuals seeking bankruptcy protection.
Many people are not aware of the benefit a mortgage lien strip. If you have taken out a second mortgage on your home to try and keep your head above water, but foreclosure is looming, filing Chapter 13 will halt the process, no matter how far along it is.
Chapter 13 bankruptcy proceedings have a potent tool that allows a debtor to remove the second mortgage. This is beneficial during a housing crisis that may have caused the value of a home to plummet below the amount of the mortgage.
The removal of the second mortgage is referred to as lien stripping, and it is legal in all 50 U.S. states. To qualify for this, the value of the debtor’s house must be lower than the balance of the first/primary mortgage, meaning the second mortgage is not supported by any equity, and turning the second mortgage into an unsecured loan. This process may not be available to everyone, and for this reason, when declaring bankruptcy, it is necessary to discuss the various options that may apply with an Iowa bankruptcy lawyer.
In a Chapter 13 repayment plan, the second mortgage is regarded as an unsecured debt, such as medical bills or credit card bills. Since the bills are paid on a pro-rated basis, in accordance with the court-ordered Chapter 13 repayment plan, the amount to be paid on a second mortgage becomes a mere fraction of what it would have been had the lien stripping option not been applied.
When the Chapter 13 repayment plan has been completed, meaning the debtor has made all court-ordered payments, the second mortgage lien is permanently removed from their property. Before choosing this route, it is wise to know the value of the residential home.
To this end, the home will likely need to be appraised. Additionally, homeowners need to check what their property tax appraised value is, as since the recession hit, property tax appraisals have become higher than the appraised value of the home. Again, this is something that needs to be reviewed with an experienced Iowa bankruptcy lawyer.