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In the last decade or so as the U.S. market has crawled out of recession, you may have come across the term “lien stripping.” Lien stripping is a process used in Chapter 13 bankruptcy by homeowners or borrowers who owe much more on their secured debts (debts backed by property like a house or car) than the property is actually worth.

As with most legal issues, only a skilled bankruptcy attorney can help you assess whether your situation would benefit from stripping off a lien from your debt. The following provides some general situations where lien stripping might be appropriate or helpful, but you should speak with a lawyer about the particulars of your case.

Lien stripping on mortgages

When you take on a mortgage for your house or a piece of land, your lender has a lien on your property. That lien allows them to pursue foreclosure if you fail to pay your mortgage.

When you take out your first mortgage, it has priority over any other mortgages that you take out at a later date – the older the mortgage, the higher the priority it receives. If your house is foreclosed on, for example, its sale would go toward paying the first mortgage before the second or third.

If the amount owed on your first mortgage is higher than the fair market value of your home, the second lender would likely not get any proceeds from a sheriff’s sale. In this case, the second or third mortgages are considered junior liens and can be included in your Chapter 13 bankruptcy plan. Once you’ve completed the plan, the remaining debt is discharged, effectively “stripping off” those junior liens from your home.

Let’s say your home is now worth $250,000, though you still owe $300,000 on your first mortgage. If you took out a second mortgage for $100,000 and still owe $75,000 on it, you can include that $75,000 in your Chapter 13 plan. Once the bankruptcy completes, any remaining amount on that second mortgage will be discharged.

Stripping car liens

Vehicle liens are another common candidate for lien stripping. In this application, however, the debt gets broken into secured and unsecured parts, with the latter being eligible for discharge.

Let’s say you have a car loan for $12,000, but the vehicle is only worth $10,000 at this point. Your Chapter 13 bankruptcy would reduce the lien to $10,000 of a secured amount (or the value of the car), and the remaining $2,000 becomes unsecured debt, which can be stripped from the total lien. The bankruptcy plan must pay the secured amount back to the lender, but the plan can either not pay the unsecured portion or pay a tiny amount alongside payments with other unsecured claims, as best fits your situation.

Consult with a bankruptcy attorney

Bankruptcy is complicated, but it can help you solve your debt problems and get you back on your feet if you’ve fallen on hard times. You also don’t have to work through it by yourself: An experienced attorney can be an invaluable resource who can help you build a repayment plan that works for you.