If you are filing for Chapter 13 bankruptcy and have a second mortgage, you may be able to “strip down” or “cram down” your second mortgage in something commonly referred to as “lien stripping.”
If the value of your home is now worth less than what you originally borrowed on your home loan, a judge can remove your second mortgage as part of your Chapter 13 bankruptcy. However, in order to be eligible, your second mortgage must be secured by collateral that is part of your bankruptcy filing.
This is possible under the terms of Section 506 of the Bankruptcy Code which understands a lien as a secured claim only when it is attached to an asset that has value. If a strip down is granted by a bankruptcy judge, your second mortgage is treated like unsecured debt and is wiped out if you adhere to the terms of your Chapter 13 bankruptcy plan over the 3 to 5 year period it is approved for.
Filing for Lien Stripping
If you are eligible for a cram down on your second mortgage, consideration for lien stripping must be included in your Chapter 13 bankruptcy filing. However, the following additional items must be included as part of lien stripping:
- Home appraisal or Broker Price Opinion
- Appraiser or Broker declaration
- Debtor declaration
- Current mortgage statement
- Additional documents as requested
Contact The Law Office of Christopher P. Walker, P.C .
If you have a second mortgage and are facing foreclosure in Orange County, there are other options available which may allow you to keep your home. By filing for Chapter 13, you can reorganize arrears on your first mortgage and strip down your second mortgage altogether. To learn if you qualify and what your options are, contact us today.