Bankruptcy Lien Stripping 7.13

How You Can Take Advantage of Bankruptcy Lien Stripping and Eliminate Your Second Mortgage


Many Indiana homeowners are upside down on their mortgages as a result of declining home prices over the past five years. By filing for bankruptcy protection under Chapter 13, upside down homeowners can keep their homes and all their other assets.  Once you file for bankruptcy protection, your creditors cannot try and collect a debt against you. Bankruptcy stays any foreclosure actions by your lender. It gives you more time to negotiate with the lender and your other creditors to reduce your debts, including get rid of a second mortgage on your primary residence by using a lien stripping strategy.


However, you should not rush into bankruptcy before weighing other options. It is recommended that you first speak with an Indiana bankruptcy attorney before making any final decisions.  Federal and Indiana bankruptcy laws are complex. The attorney will be able to explain the laws to you and your legal rights and obligations and go over other options with you if you decide that bankruptcy is not the right strategy for your financial situation.


Qualifying for Chapter 13

Individuals who file for Chapter 13 bankruptcy protection must show that they have sufficient income to repay their creditors. Chapter 13 is a reorganization and restructuring of your debts which is accomplished by negotiating debt reduction with your creditors, including lien stripping with your mortgage lender, and then entering into a court-approved repayment plan over a three to five year period.  With lien stripping, you also get rid of your second mortgage. An Illinois bankruptcy attorney can help you negotiate debt reduction with your lender by restructuring your debt.   This means that you will be able to get out from underwater on your mortgage when you owe more than your home is worth.


How Lien Stripping Works

Lien stripping basically works in the following manner.  You and your first lien holder will enter into a court-approved repayment plan. Your Indiana bankruptcy attorney will negotiate a modified loan with your lender, which will make your mortgage payments more affordable. Your second mortgage goes away so you no longer have to worry about repaying the second. When you complete your repayment plan, the second mortgage and your unsecured debts (except for non-dischargeable debts, including spousal and child support, student loans, taxes and other non-dischargeable debts, which your Indiana bankruptcy attorney can explain to you) are discharged by the bankruptcy court.


Consult with an Indiana Bankruptcy Attorney

Filing bankruptcy is serious and should be discussed with an Indiana bankruptcy attorney. Since bankruptcy is typically used as a last resort when debts are unmanageable, your Indiana bankruptcy attorney can also advise you of any other options that may be available to you such as a mortgage modification, reinstatement, forbearance, short sale, debt settlement and other options.