Explain the concept of lien stripping

What will be an ideal response?


Although a Chapter 13 debtor is not allowed to cram down the mortgage balance on a primary residence, the debtor has the option of lien stripping. Student should discuss the following: If there is a second or even a third mortgage or a home equity line of credit on the debtor's property, the secondary loan or loans may be eligible to be stripped away from the primary loan on the property. This process works only if the debtor's home has insufficient value to secure the secondary loans on the property. If there is just enough or not enough value in the debtor's home to secure all or some of the primary loan on the property, the secondary loans are presumed unsecured, and the bankruptcy court will strip away the secondary loans. The court will treat those loans (liens) as unsecured debt that will receive little or no payment from the debtor's repayment plan.

Legal Studies & Paralegal

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