Here’s a little primer on Lien Stripping and Cramdown
by a Massachusetts bankruptcy lawyer who has done many of these cases.
If you are a homeowner and wish to restructure your debt repayment under Chapter 13 bankruptcy it may be possible to have the court discharge the second mortgage on your home through a process known as “lien stripping”. In order to “strip down” or “cramdown” your second mortgage the current value of your home must be less than the balance of your first mortgage. If this is the case then any additional mortgage or liens on your home can be considered an “unsecured debt” because any attempt to foreclose on your property would not even satisfy your first mortgage. To learn more about Chapter 13 bankruptcy and the possibility of eliminating your second mortgage you can speak to a bankruptcy attorney Doug Beaton over the phone or at his North Andover office.
Under current bankruptcy law it is not possible to lien strip the original mortgage on a property that is your personal residence. This is because some or all of that debt is still secured by the remaining value of the property. If a current appraisal shows that your second mortgage is no longer secured by the reduced value of your home, the judge could discharge that amount because it can now be considered an “unsecured debt”. We can discuss the details of what documents the court will need to substantiate your claim when you visit our offices and allow us to evaluate your financial situation.
As an example, if you have a first mortgage for $150,000 and a second for $25,000 but the current market value of your home is only $125,000, there is no remaining equity in your home if it were sold or foreclosed on to pay any of the second mortgage. As part of your Chapter 13 debt reorganization plan, you could be able to have the court “lien strip” the entire $25,000 second by designating it as an unsecured debt. The court can then discharge that amount from the debts you will be required to settle. To learn more about Chapter 13 bankruptcy and the possibility of eliminating your second mortgage through lien stripping call our offices for a free consultation.
Contact me at 978-975-2608 to find out about lien stripping and how to cram down or eliminate a second mortgage on your home.
By Doug Beaton