Most people generally file for bankruptcy as a last resort when they are financially struggling. Under certain types of filings, you can strip away the unsecured portion of your debt and discharge it or pay it off for very cheap. This is called “lienstripping.”
Lienstripping is only available in a Chapter 13 or Chapter11 bankruptcy filings. However, under current state law, even under a Chapter 13, lienstripping is not available if your debt is only secured by your personal residence or property.
Unsecured Mortgages Are a Different Story
If you have a mortgage (usually a 2nd mortgage) that is wholly unsecured, your Central Valley bankruptcy attorney can ask the court to treat the total amount due on the mortgage as an unsecured debt. At this point, you can either partially or fully discharge the portion of the debt in the Chapter 13 plan submitted to the court.
An Example of Lienstripping
Here is an example: Assume your house is worth $400,000. Assume the balance on your 1st mortgage is $410,000. Also assume you have a 2nd mortgage on your house with a balance of $50,000. The 2nd mortgage is defined as “wholly unsecured.” The reason is that at a foreclosure sale, the 2nd mortgage holder would get nothing because the 1st would have to be paid off first.
In this hypothetical situation, your BK attorney could have the 2nd mortgage stripped off in a Chapter 13 bankruptcy because it is wholly unsecured. As part of the bankruptcy plan, your attorney could also propose that you would pay little or nothing on what was previously a 2nd mortgage on your house.
This is an example of “lienstripping” the 2nd mortgage. The case that allows debtors to do this is In Re Zimmer (9th Cir. 2002) 313 F.3d 1220, 1222-1225.
Call an Experienced Central Valley Bankruptcy Attorney
Have you already filed for bankruptcy or are planning to file for bankruptcy? If so, it may be in your best interest to immediately consult with an experienced bankruptcy attorney to help you determine what is in your best interest.