For a variety of reasons, many Indianapolis residents can find themselves upside-down on their homes, meaning the home is worth less than the loans they have against it. Some may have multiple mortgages or other liens against their homes.
In this situation, homeowners might consider filing a Chapter 13 bankruptcy to take advantage of a process commonly called lien stripping.
Basically, lien stripping works when a family has two or more liens against their home and when their home is worth less than their loans against.
As part of their Chapter 13 repayment plan, they may treat the second loan as an unsecured debt, that is, as if the mortgage or lien did not exist.
Granted, the family still has to attend to the debt. However, financially, lien stripping is a huge advantage. Otherwise, the family will be forced to make full payments on the second mortgage, and catch up if they are behind, if they want to keep their home.
With lien stripping, a family may wind up avoiding the debt altogether or paying pennies on the dollar.
Lien stripping is not a simple procedure
As a word of warning, though, lien stripping is not a simple procedure. Like the Chapter 13 bankruptcy as a whole, using the process correctly requires legal skill and experience.
Not surprisingly, the holder of the second mortgage will not take kindly to losing their collateral and may vigorously oppose the process.
A person considering a Chapter 13 because they have multiple mortgages should make sure they are well-advised about whether lien stripping is an option for them.