Eliminating Mortgage Liens Through Bankruptcy

Some people are able to eliminate mortgage liens on their house during bankruptcy in a process referred to as “lien stripping.” It is important for people to know that lien stripping for most liens is only available through Chapter 13 and not Chapter 7 bankruptcy. To strip a lien, it is also required that the amount is not a first portion mortgage and that the value of the house is less than the payoff of the first mortgage.

The Different Liens and Which Bankruptcy Chapters Apply

There are three different types of liens that a person might want to strip, which include the following:

• Judicial liens arise from judgments in law suits.
• Statutory liens encompassed tax liens and property tax liens.
• Voluntary liens encompass deeds of trust, home equity lines of credit, and mortgages.

The only liens that can be stripped through Chapter 7 bankruptcy are judicial liens. If a person files for Chapter 7 bankruptcy and wants to keep a house or other asset, he or she will be required to repay all loans secured by the house even if a loan is underwater.

In Chapter 13 bankruptcy, every kind of lien can be reduced to the value of the collateral to which it is attached.

The Process of Stripping a Lien

To strip a lien, a person must file a motion with the corresponding bankruptcy court and serve any affected lenders. If a motion is contested, a court will conduct a hearing during which a person will be required to present testimony about the value of the home from which he or she wishes to strip the lien. If a court agrees that it is worth less than the first position mortgage, a lien will be stripped and creditors of both a secured and unsecured nature will be paid. To successfully strip a lien, a person must also finish the repayment plan. If any payments were missed while the plan is in place, the court will dismiss a person’s case and the lien will remain attached to the property until the loan is repaid.

Placing a Value on Your Property

Making sure that your property has the correct value assigned to it is one of the most important parts of the lien stripping process. If there is a dispute with a person’s mortgage company about the property’s value, a court hearing will likely need to be conducted. As a result, the final property value that will be placed on your property will be the result of a judge’s decision. Because some judges view lien stripping a loophole method, there is a risk that the judges might side with evidence that is presented by creditors.

Contact an Oklahoma Bankruptcy Attorney

If you need assistance stripping a lien, get help from a talented bankruptcy attorney like Jim A Lyon. With a significant track record of helping many people successfully navigate the bankruptcy process, attorney Lyon knows what it takes to make sure that your case resolves in the best possible. Contact attorney Lyon today for assistance with your case.