Lien Stripping    




When you purchased your home, you probably obtained a loan from a bank or financing company (“Lender”) to buy the property.  In exchange for the loan, you likely granted the Lender a lien on the home.  In essence, you gave the Lender a legal claim on your property to secure payment of the loan and ensure the Lender gets paid back.  Many times, home owners will use the equity in their home to obtain a second mortgage or home equity line of credit and grant the same or another Lender a lien on their home. 

In today’s economy, many homes with more than one mortgage are upside down, meaning you owe more to your Lenders than your home is worth.  When your home is worth less than you owe on your 1st mortgage, the Federal Bankruptcy Code through Chapter 13 Bankruptcy allows you to remove your junior liens entirely through what is known as a lien strip. 

For example, let’s say your home is worth $95,000.00 and you owe $100,000 on your first mortgage, $50,000.00 on your second mortgage or home equity line of credit (“HELOC”) and $20,000.00 in credit card debt.  In this scenario, your HELOC is completely unsecured, just like your credit cards.  In a Chapter 13 Bankruptcy case, the Bankruptcy Code allows you to pay only those unsecured debts you can afford to pay.  If you can’t afford to pay them, then you don’t.

To qualify for a lien strip and Michigan Chapter 13 Bankruptcy protection that will allow you to reorganize your debts, you must have a steady stream of income that allows you to pay all of your reasonable and necessary living expenses.  It does NOT require that you be able to pay your unsecured debts, such as your HELOC or credit card debt.  In many cases, your credit cards and HELOC loans are paid a very small amount, if anything. 

One of the experienced attorneys at Ziulkowski & Associates can prepare a Chapter 13 Bankruptcy Plan that allows you to keep enough money from your monthly income to pay all of your family’s reasonable and necessary living expenses such as your first mortgage payment, utility bills, home repairs, medical bills, repay 401k loans, car payment, recreation, clothing, etc., and left over monies, if any, may be used to pay your unsecured creditors, including your HELOC.  For example, if your household take-home pay is $4,500.00 per month and, after you keep all monies needed to  pay your reasonable and necessary living expenses, you only have $100.00 per month to pay credit cards and your HELOC, then that will likely be all you pay per month through the life of your plan.  These payments could be less if your income decreases, or more if your income later improves permanently.  But you will always be able to change your Chapter 13 Plan payments according to what you and your family can afford. 

Call one of the experienced attorneys at Ziulkowski & Associates today to discuss your Chapter 13 bankruptcy and lien strip options and take back your financial future.


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