image of coins in handWith the decline in property values over the last few years, many people are finding that their homes have little to no equity. If you owe more on your home than it is worth, you may be able to file a Chapter 13 bankruptcy and “strip” the junior mortgage(s) off. In other words, if you have a junior mortgage (a 2nd mortgage, 3rd mortgage, or home equity loan), and your house does not have enough equity to secure these mortgages, then you may be able to file a Chapter 13 bankruptcy, stop making payments on the junior mortgage(s), and discharge the debt in bankruptcy.

This process is called “Lien Stripping”. Once your Chapter 13 is filed, you can file an adversary proceeding in bankruptcy court to “strip off” the junior mortgage(s) and reclassify the mortgage(s) as unsecured debt. Under a Chapter 13 bankruptcy, unsecured creditors take last priority and depending on your income, often do not have to be paid back at all.

Without bankruptcy, if you have a junior mortgage on your home and do not make payments according to the terms of the loan, that mortgage company could foreclose on your property. However, if the junior mortgage is “stripped” in a Chapter 13 bankruptcy, the mortgage becomes an unsecured debt and is discharged at the end of your Chapter 13. Once you complete your Chapter 13 plan and receive your discharge order, the junior mortgage company must release its lien on your property, and you will no longer owe the debt. This is extremely advantageous to homeowners who do not have equity in their homes and generally saves them thousands of dollars.

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Chapter 13 bankruptcy can also discharge credit cards, medical bills, past due utility bills, and can help you repay the tax debt, child support arrears, and catch up on first mortgage payments if you are behind. Whether you are in Grafton, Delavan, Kenosha, or anywhere in between, if you would like to look further into stripping off a this type of mortgage or filing a Chapter 13 bankruptcy, contact the Bankruptcy Law Center for more information.

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