| p>Lienstripping is a process in bankruptcy whereby | | | | equity line attaches to. The current real estate climate |
| junior lienholders are stripped, or removed from being a | | | | being what it is, most individuals who purchased a |
| secured debt against the property. It applies only in | | | | home between late 2003 and 2007 would be eligible |
| Chapter 13 bankruptcy cases and only to the debtor's | | | | for a lien strip. |
| primary residence. Lienstripping does not apply to | | | | Once it is determined that a debtor is a candidate for |
| rental properties or second homes. | | | | lienstripping, a motion is prepared and filed with the |
| In order to qualify for a lien strip in Chapter 13, debtors | | | | court. Creditors have an opportunity to object if they |
| must show that the current value of their property is | | | | feel there is some security to the loan to be stripped, |
| worth less than what is owed on the first, such that | | | | so it is important to come to the table with solid |
| the junior lien is essentially unsecured debt. For | | | | evidence. It is recommended that a formal appraisal |
| example, a debtor who has a home worth $500k with | | | | be done on the property because that is the best |
| a first mortgage of $510k and a second mortgage or | | | | evidence of value. |
| equity line of $90k would meet the requirements to | | | | Once the judge enters an order allowing the lien to be |
| have the lien stripped. | | | | stripped, the debtors no longer have to make monthly |
| On the contrary, the same debtor would not be eligible | | | | payments to their second mortgage and the debt is |
| for lienstripping if he owed $499k on his first, because | | | | treated as an unsecured debt that is ultimately |
| there is still $1k of security to which the second or | | | | eliminated in the bankruptcy upon entry of discharge. |