Homeowners in Florida who are living with the constant threat of foreclosure looming over their heads are struggling to keep themselves afloat financially. Changes in income and employment and mounting debts can lead to feelings of despair. If you have already fallen behind on your second mortgage payments, you may be able to prevent your lender from foreclosing on your home with bankruptcy by filing to have the lien stripped.
Lien stripping is a protection offered through Chapter 13 bankruptcy. It provides you the opportunity to get certain types of debts like second mortgages and equity lines of credit removed. These debts are converted from secured to unsecured so they can become dischargeable in bankruptcy. Once a lien is stripped, it becomes a nonpriority unsecured debt. After you emerge from bankruptcy, you may no longer have to repay the lender or creditor. There are stipulations in place that can affect your eligibility for this type of relief.
For your situation to qualify for lien stripping, the total value of your second mortgage or equity loan must be less than the original mortgage amount of your home. For example, you originally took out a mortgage on your home for $176,400 when you first purchased it. At some point, you took out a second mortgage for $126,000. If the second mortgage is lower than the original one and the home is valued at less than $126,000, then it is eligible for lien stripping.
Another example is your first mortgage was $135,000 and you took out a home equity line of credit to make improvements that resulted in your property's value going up. Your home is now worth more than it was worth when you took out the first mortgage. Because there is a surplus in the value of your home, that line of credit is not eligible for lien stripping.
Other factors to consider
Your income, along with other factors, can affect whether you have to repay those debts back. If your income is over a certain threshold, you will need to make payments on all unsecured debts, including the lien that was converted to an unsecured debt within the time frame specified in your bankruptcy repayment plan. Failure to make all payments on time during the term of your repayment plan can result in the lien not being removed.
Lien stripping is not for everyone; there are many factors that can affect a person's eligibility. If you are struggling to make mortgage payments and considering bankruptcy or are interested in learning more about lien stripping, you should discuss your situation with an attorney.