Can I Remove Liens From My Home Through Chapter 13 Bankruptcy?

 Posted on June 27, 2022 in Chapter 13

There are multiple types of debt that can cause a family to experience financial difficulties. When a family struggles to repay what is owed to creditors, they may be concerned about the steps that may be taken, such as a bank foreclosing on their home if they are unable to make mortgage payments. In some cases, multiple creditors may have a claim against a home, and different types of liens may exist. Debtors who are in a difficult or impossible financial situation may be considering bankruptcy, but they will often want to determine whether they will be able to keep their homes. Chapter 13 bankruptcy is often the best option in these cases, and when filing for this type of bankruptcy, it is important to understand how different types of liens will be handled.

Priority of Liens in a Chapter 13 Bankruptcy

While bankruptcy will allow for the discharge of a person’s obligation to repay debts, it may not eliminate certain types of liens. This means that even if a debt is discharged, a lien holder will have the right to enforce their claim against the debtor’s home. However, Chapter 13 bankruptcy may allow for the removal of certain types of liens through a process known as “lien stripping.”

When a person files for Chapter 13, a repayment plan will be created in which they will pay a certain amount each month toward their unsecured debts, which may include credit card balances, medical bills, missed mortgage payments, past-due child support, or other debts that are owed. A homeowner will also need to make ongoing mortgage payments to ensure that they can retain ownership of their home, and certain types of liens against their home may remain in place.

Lien stripping may be possible for junior mortgage liens or some other types of liens. This may be an option if there is no value available to secure these debts. For example, if a homeowner is “underwater” on their first mortgage, meaning that the amount owed on the mortgage is more than the actual value of the home, there will be no equity securing a second or subsequent mortgage. These junior liens may be stripped off by reclassifying them as unsecured debts. Liens that are stripped off will be removed from the home, and after the completion of the Chapter 13 repayment plan, these debts will be discharged.

During a Chapter 13 bankruptcy, different types of liens may be given a different priority. In many cases, this priority is determined based on the order in which liens were created. That is, a first mortgage will be given priority over a second mortgage, which will have priority over a third mortgage. However, other types of liens may have a higher priority. Tax liens, mechanic’s liens, or other statutory liens may be treated with a higher priority, so they may need to be considered when determining whether junior mortgage liens are fully secured and may be stripped off during bankruptcy. Judgment liens will usually have the lowest priority, and they can often be removed during a Chapter 13 case.

Contact Our San Antonio Bankruptcy and Lien Stripping Lawyer

If you have questions about how different types of liens against your home will be handled in a bankruptcy case, the Law Offices of Chance M. McGhee can advise you of your rights and options. We will help you determine the best approach to take to address your debts and retain ownership of your home. Contact our Boerne Chapter 13 bankruptcy attorney at 210-342-3400 for a free consultation.

Sources:

https://homeguides.sfgate.com/can-keep-home-release-second-mortgage-debt-through-bankruptcy-47148.html

https://statutes.capitol.texas.gov/Docs/PR/htm/PR.52.htm

https://www.justice.gov/jm/civil-resource-manual-95-priority-liens