Bankruptcy – Chapter 13 – Lien Stripping of Second Mortgage

Lien Stripping of Second Mortgage in Chapter 13 Bankruptcy.

BANKRUPTCY: Chapter 13 – Lien Stripping of 2 nd Mortgage

The Problem of a Second Mortgage of Your Residence :

Bankruptcy debtors in Georgia are frequently faced with the difficult decision of what to do about the debt on their residence. In recent years, it has been increasingly common for the homeowner to find that the value of the home is exceeded by the amount of debt owned on the mortgage(s) secured by the property. Many times the “negative equity” in the residence is the result of a second mortgage loan.

In fact, the second mortgage or home equity line of credit loan (HELOC) is often one of the largest debts that a bankruptcy debtor has. It is debt secured by a lien voluntarily placed on the debtor’s residence by the debtor by granting to the lender a second priority deed to secure debt at the time money is borrowed.

If the bankruptcy debtor retains the secured property, then the security interest (lien) of the second mortgage remains affixed to the property even though the debtor’s personal liability for the debt had been discharged. Eventually, that second lien had to be dealt with in order to sell or refinance the property. Even worse, if the first mortgage was ever paid off or the value of the residence increased, then the second mortgage might foreclose.

Relief Available in Chapter 13.

Fortunately help may be available when a debtor files a Chapter 13 bankruptcy case. The debtor can seek to have the second lien “stripped” or removed from the secured property.

How Lien Stripping Works :

To be eligible for a lien to be stripped from the secured property, the following must exist or occur:

· No equity in the property –

o Debt of first mortgage exceeds the value of the property;

o The second priority mortgage has no asset value supporting the lien;

· Debtor files a separate proceeding to determine whether or not there is any value supporting the second mortgage debt –

o Value of the property must be proven by the debtor the of independent real estate appraisals, ad valorem tax assessment appraisals, on-line cost comparisons (, etc.) and/or other supporting materials;

o Order entered by the Court granting debtor’s motion to strip the lien;

· Discharge Order entered granting a discharge of debts to the debtor –

o The stripping of the lien is not effective until the debtor is granted a discharge;

o Record Bankruptcy Court Orders in the clerk’s deed records in the county where the property is located.

Contacting the Right Attorney :

Bankruptcy can be a complicated matter. The responses to these Frequently Asked Questions are general in nature, and are not intended to provide legal advice for specific cases. A consultation with a Georgia bankruptcy attorney can provide you with the information you need to determine which option best addresses your circumstances. As a solo practitioner, I am able to give more time and personalized attention to my clients. I will personally communicate with creditors or banks to resolve your issues. Your case will never be handed down to a legal assistant or other staff member.

NOTICE: The services or benefits offered are bankruptcy relief under the provisions of the U.S. Bankruptcy Code. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.