New York Bankruptcy Attorneys Lien Stripping

Lien stripping in bankruptcy

Liens can be stripped off of the debtor's assets in Chapter 11 or Chapter 13 when there is not enough equity in the asset, after deducting senior liens from the property's current market value, to secure the unsecured  in whole or in part, where the lien exceeds the value of the debtor's property. Contact a bankruptcy Attorney for help today.

Section 506 of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches.  To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured.

In Chapter 11 or Chapter 13, even voluntary liens, such as mortgages and security interests, can be stripped down to the value of the collateral, with the exception of voluntary liens secured only by the debtor's residence. Unfortunately Congress has thus far failed to change to bankruptcy law to allowing a mortgage loan modification.

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Contrast this procedure to lien avoidance pursuant to § 522, where only judicial liens such as judgment liens or voluntary liens on household goods can be avoided if the property would otherwise be exempt.  

Understanding Lien Stripping from a bankruptcy lawyer

If you own real estate with a second or other succeeding mortgage after your first, chances are you can remove that lien in a Chapter 13 Bankruptcy Case.  This is most common these days as a result of the declining real estate market. You need the help of good bankruptcy attorneys. Our bankruptcy lawyers can help you through the short sale process if needed.
With real estate declining as much as it has, most second and other mortgages we see beyond the first are wholly unsecured.  In fact, in many cases, we are finding that even the first deed of trust/mortgage on the property is greater than the value of the house.  So how can you avoid a second lien on real estate?  It's thru a little code provision in Chapter 13 called 11 USC 1322.

For example:  Suppose a debtor purchased a home at the top of the market towards the end of 2006 for $300,000 in New York.  They purchased the house with a $250,000 first deed of trust from Citi Bank and $50,000 second deed of trust from Bank of New York.  Suppose now, in 2008, the house has now dropped to $250,000.  Since the second of $50,000 is not secured by the real estate anymore, they are considered “wholly under secured.”  In chapter 13, you can “avoid” a “wholly under secured” lien on your personal residence.  If one were to avoid the lien, then they would now have a house valued at $250,000 with only a first deed of trust for $250,000.  The $50,000 second was “stripped” from the property and is treated as an unsecured creditor in the chapter 13 case no different than a Bank of New York Master Card.
While lien stripping is most common on under secured mortgages, there are also several other ways to avoid second mortgages in Bankruptcy.  Other examples of lien stripping can take place if there is a balloon payment due during the life of the chapter 13 case, or the second is secured by other assets in addition to the house (personal property, road, ally, etc., or in the event that the property is not the “debtor’s principal residence.”  

 How can this help me with a mortgage loan modification or a short sale?

Tax liens

Tax liens can be stripped off in reorganization proceedings (Chapters 11 and 13)  to the extent that the lien does not attach to equity in property.  Tax liens can't be avoided in Chapter 7 on the grounds that they impair exemptions;  if the tax is dischargeable in the Chapter 7, the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. Payment of that sum entitles the debtor to the release of the lien.

  Avoiding liens that impair exemptions.

  Tax liens after Chapter 7

How can I Lien Strip voluntary liens

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Short Sale and Lien Stripping

Mortgage Loan Modification and Lien Stripping

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Regardless of whether you own residential or commercial property, foreclosure may not be your best option. For foreclosure help and information on alternatives,Contact lien stripping Bankruptcy attorney at The Castiglia-Rubinstein Law Firm today to discuss your options. Schedule an appointment and learn how we can help you.