Lien Stripping Is A Great Way To Protect Assets
A San Jose bankruptcy attorney explains how lien stripping can protect your assets
Many Americans purchased a new home within the past seven years. Many of those who did so are now experiencing rising monthly mortgage payments while at the same time watching the equity in their home decrease. This is unfortunate as many Americans were relying on a majority of that equity for retirement. When purchasing their homes, it was not uncommon to see a first and second (senior and junior) mortgage taken out secured by the value of the house with the idea that home values would infinitely continue to rise. As Lord Byron once spoke: “When falls the Coliseum, Rome shall fall.” The housing crisis is no different, plummet went the housing prices and down came the rest of the economy.
But unlike Rome, American homeowners with more than one mortgage on their home have hope. This hope is given the unusual name of “lien stripping.” Lien stripping is a fancy term describing the way Chapter 11 or Chapter 13 bankruptcy petitioners can remove the second mortgage (a secured loan) from their property and transform it into an unsecured debt. The advantage of this is that should the debtor not have sufficient monthly income to pay both their first and second mortgage, the default on the second mortgage will not result in foreclosure and loss of the home. The reasoning behind this strategy is that a mortgage is a secured loan, or a loan that can be forcefully repaid through involuntary foreclosure or repossession. Once home values drop below the balance of the first mortgage, the second mortgage is essentially unsecured. Bankruptcy courts have recognized this and thus lien stripping was born.
There are a few caveats to lien stripping. First, the debtor(s) must have sufficient monthly income to maintain payments on their first mortgage. Second, the current market value of the home must be at or below the balance of the secured loan. Currently, bankruptcy courts may not force a lender to renegotiate the terms of loan and many Americans are simply forced out of their homes. Hopefully, tactics such as lien stripping will force lenders to rethink their hard-line strategies of ruining Americans’ lives when, in reality, it was them who placed themselves in the situation they are in with their predatory lending in the past seven years. It was only a matter of time until it caught up with them.
If you have questions regarding Bankruptcy in San Jose please contact us at 408.279.2288 for a free consultation or visit www.bkanswers.com and we can connect you with one of our experienced San Jose Bankruptcy Attorneys. After you have spoken with one of our downtown San Jose bankruptcy attorneys, we can schedule you for a free face to face appointment in an office location nearest you. Our team of San Jose Bankruptcy Lawyers can assist you with all aspects of your bankruptcy or bankruptcy litigation case. If you have questions about filing a Chapter 7 bankruptcy, a Chapter 11 bankruptcy, a Chapter 13 bankruptcy, or would like to learn more about bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, cram down, stopping a foreclosure, wage garnishment, asset protection, discharging a debt, etc. we can help! We have bankruptcy attorneys located throughout California and Oregon who can assist you with all of your debt resolution questions. Please feel free to complete our free online bankruptcy evaluation and we can quickly determine if you are a qualified candidate for bankruptcy. We look forward to hearing from you, San Jose and the South Bay!
