To qualify for a lien strip under Chapter 13, debtors must demonstrate that the current market value of their property is less than the amount owed on the first lien, such that the junior lien is essentially unsecured debt.For instance, a debtor with a $500k property, a $510k first mortgage, and a $90k second mortgage or equity line would meet the requirements for lien stripping.
In contrast, the same debtor would not be eligible for lien stripping if he owed $499k on his first mortgage because there would still be $1k of security to which the second or equity line would attach.Given the current condition of the housing market, the majority of individuals who purchased a home between late 2003 and 2007 are eligible for a lien strip.
Once it is determined that a debtor is eligible for lien stripping, a court motion is drafted and lodged.Creditors have the option to object if they believe there is a security interest in the loan to be stripped, so it is crucial to present firm evidence.It is advised that a formal appraisal be conducted on the property because it is the most reliable indicator of value.
Once the judge enters an order allowing the lien to be stripped, the debtors are no longer required to make monthly payments on their second mortgage, and the debt is regarded as an unsecured debt that is ultimately discharged in bankruptcy.
" - https://www.affordablecebu.com/