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Lien stripping for second mortgage after bankruptcy

For many Ohio residents, avoiding foreclosure is an important factor in their decision to file for bankruptcy. Before choosing which form of bankruptcy to file, homeowners who have a second mortgage need to know how that obligation will be affected.

A second mortgage is a home equity type loan with a lien position on the property title underneath the primary mortgage. If a borrower fails to make loan payments on time, a second mortgage lien holder has the power to foreclose on the property. To prevent this from happening, a borrower who has defaulted on a second mortgage may complete a process called lien stripping after a bankruptcy filing. However, lien stripping is only possible under a Chapter 13 bankruptcy.

Under Chapter 7 liquidation bankruptcy, lien stripping is not possible because second mortgages are normally considered secured debt. Therefore, a homeowner with a second mortgage may not be able to eliminate a lien on their property and avoid foreclosure if they file for Chapter 7 bankruptcy. A person who files for Chapter 13 bankruptcy may be able to have liens on their property eliminated after successfully completing the three-to-five year debt repayment plan. Stripping a lien is not an automatic part of the bankruptcy process, and homeowners will need to file an application in order to have a lien on their property removed.

Although Chapter 13 bankruptcy may have appealing benefits, not every debtor qualifies for this form of relief. A person who is unsure about which kind of bankruptcy should be filed may want to speak with an attorney who has experience in this area and who can explain the eligibility requirements.

Source: SF Gate, "How to Strip Away a Second Mortgage Through a Bankruptcy", Tony Guerra, December 01, 2014

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