Lien stripping is a debt-relief strategy available primarily in Chapter 13 bankruptcies whereby junior liens on your property, provided they are wholly unsecured, are eliminated. Junior liens include any loans taken on a piece of property in addition to your first mortgage. Most typically, junior liens are second or third mortgages, home equity loans, or home equity lines of credit (“HELOCs”).
These types of junior liens are considered wholly unsecured if the equity available in your property fails to cover any portion of the junior lien amount. As a result, even if the junior lien was initially guaranteed (or “secured”) by the real estate’s value, if it is determined that the available property equity is only sufficient to cover the first mortgage, all junior liens will be “stripped,” transforming the previously secured debt into unsecured debt. In Washington State, lien stripping is usually done in an adversarial proceeding, where a petition is filed against the lender.
What happens to a junior lien after it is stripped?
Once a junior lien on a property is stripped, it will be handled in the same manner as unsecured debts in a bankruptcy (for example, credit card debt). The lender will typically receive a small amount or nothing at all for the outstanding debt, which will be discharged at the end of the Chapter 13 proceedings and successful completion of the three- to five-year Chapter 13 plan. Following discharge, any stripped lien lender must remove its lien from your property.
Will lien stripping work for you?
To determine if lien stripping is a viable solution for you, it is necessary to evaluate your home’s current worth as compared to the total amounts owed on your outstanding debts. For example, if your home is presently worth $150,000, and your first mortgage has $160,000 outstanding, because the first mortgage’s outstanding debt amount exceeds the home value, all subsequent junior liens will be stripped.
The veteran bankruptcy attorneys at BK Lawyers LLC can help you evaluate if lien stripping is an appropriate form of debt relief for your individual circumstances, and if so, aggressively pursue this relief on your behalf in the courtroom. Contact us to schedule your free initial consultation.