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While you may be able to strip your 2nd mortgage or avoid the lien on your Home Equity Line of Credit or Heloc in a Chapter 13, in a Chapter 7, you may still be able to effectively ignore it and keep your home. However, the 2nd Mortgage or Heloc would still have a lien on the property. You would then have to settle the lien or in some manner deal with it later.
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Chapter 13 Lien Avoidance of your 2nd Mortgage or Home Equity Line of Credit
Also known as a Lien Strip Motion in a chapter 13 allows you to not only discharge your balance owing to the 2nd mortgage or heloc but also to remove the lien from the property.
Basically it works this way, if your home's value is less than the balance on the 1st mortgage, then you in theory strip the 2nd mortgage off the house. You have to file paperwork with the court and prove that the property's value is below the balance on the first mortgage.
However, if the value is even just a little bit over the balance on the first then you're stuck with the whole 2nd mortgage. More importantly, if the value is close to the first, what you're probably going to end up with is an expensive evidentiary hearing but that cost can probably be absorbed into the monthly payment plan of your chapter 13 bankruptcy case.
Most of the time most of you will come to my office and formerly your house was worth $500,000 and now you have a first mortgage with a balance of $400,000 and a second or a heloc with a balance of $100,000 and now the house is worth between $200,000 and $300,000.
In that case, when file your paperwork against the lender with the court, the bank holding the 2nd mortgage will capitulate and default your motion to strip their lien off of your house.
Sounds great, except that you still have a house worth probably about $250,000 and a mortgage with a balance of $400,000. Not that there's anything wrong with that, as long as you can afford the payment on the first.
Nevertheless, that's a big difference in value.
Here's the kicker, in order to have the 2nd mortgage lien truly stripped off of your home, you must complete the chapter 13 payment plan. The payment plan will last from 3 to 5 years. On top of that, they'll keep all of your tax refunds while your chapter 13 payment plan is pending.
Your payment might not be very much, it might only be as low as a couple hundred per month and then it's over in 5 years, that's a good deal compared to paying on a $100,000 2nd for 20 years even at a low interest rate. Depending on your income, your payment might be pretty high too.
If something happens to you during your payment plan, such as a longish illness, lose your job, your spouse loses a job, you break your leg, your transmission disintegrates on the freeway one day, the economy changes and the industry you work in crashes, the law changes and your industry is put out of business by the state legislature or congress . . . etc etc.
We already know that approximately 70% of all chapter 13 bankruptcies will eventually fail and end up as a chapter 7. And that percentage may be a lot higher in the last couple of years too.
Make sure you really want to keep that house.
When you file bankruptcy from anywhere in Riverside County your hearing will be in the city of Riverside. Bankruptcy hearings are usually short just a few minutes long. However, remember that the drive to get there may be 45 minutes to an hour and half and that's only if the traffic is in your favor.
Many bankruptcy attorneys who live far from the court house will never go to the hearing with you. I try to be there as your bankruptcy attorney representing you in the Riverside hearings. However everyone has scheduling conflicts sometimes. Nevertheless I do my best to be at every hearing personally.
Whatever the usual legnth of time to get to your Riverside bankruptcy hearing, make sure you double it. It's not worth the hassel of missing your hearing potentially having it dismissed or postponed and paying to refile the case or even for me to come to a 2nd hearing for you. Leave plenty of time early and you'll be able to relax because you're not late. Bring a book.
Nothing in this website may be construed as legal advice to any single individual or entity. Murrieta-Bankruptcy.com and all affiliated websites owned by Attorney David L Nelson are federally recognized debt relief agencies. Attorney David Nelson serves clients in San Bernardino, Riverside, Los Angeles, Orange and San Diego Counties. Copyright 2010 Bankruptcy Attorney David Nelson. All rights reserved.