Unfortunately there is nothing that an attorney can do to reduce the 1st mortgage on a principle residence home through Bankruptcy. However, there is something an attorney can do to reduce the 2nd mortgage on a principle residence or the 1st mortgage of a secondary home through a Chapter 13 Bankruptcy. The attorney can file a motion to devalue the lien, more commonly referred to as "Lien Stripping."
A Lien Strip can be a great benefit for a Chapter 13 Bankruptcy client. If a Bankruptcy client is able to stay current on his or her first mortgage, the lien strip can demand that the court consider the second mortgage unsecured debt. Once the court approves the lien strip, the second mortgage is treated the same as credit card debt. The amount that the Bankruptcy client pays to the unsecured creditors is determined by the liquidation assessment.
A liquidation assessment takes into consideration how much the unsecured creditors could be paid if the Bankruptcy client were to liquidation of his or her assets for their present value, minus the exemptions available.
- if Bankruptcy client A owes $100,000 in credit card debt and $90,000 on a second mortgage that has been lien stripped, client A will owe $190,000 in unsecured debt.
- Client A owns a boat that could be sold today for $40,000
- Client A also owns a very nice car worth $30,000.
- Client A uses an exemption and reduces the assessed value of the boat to $30,000 and the car to $20,000 for a total of $50,000 in assets.
- Client A will then be required to pay $50,000 over the next 5 years to the unsecured creditors.
- Client A will have $140,000 of the unsecured debt discharged.
DISCLAIMERThis Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.