This blog post is about getting an effect in a Chapter 7 case which is similar to lien stripping in a Chapter 13 case. In a Chapter 7 bankruptcy case, the filers get an opportunity of keeping their debts on a secured loan until they are keeping up with their payments. This, together with the Florida Constitution, allows the keeping of financed homes through bankruptcy.
But, most of the people, these days, are struggling with the problem that their house is underwater and the equity does not secure their second mortgage anymore. For example:
Home Value Mortgage Amount Secured Amount
$110,000 1st Mortgage $120,000 $110,000
2nd Mortgage $80,000 $0
Here, the amount owed on the home by the debtor is $120,000 + $80,000 or $200,000, but its worth is now only $110,000. Thus, the debtor is underwater by $90,000. Since the home is horribly underwater, a smart debtor might think of giving up the home in bankruptcy, as he or she would not want to pay $90,000 more than the home is worth. Now, if the debtor surrenders the home, $110,000 will be entirely paid to the first mortgage holder (they are always paid first) and the second mortgage holder will get $0.
The second mortgage is aware of getting $0, in case of a bankruptcy filing by the debtor, and also that filing for bankruptcy will be a sensible choice for the debtors when they are underwater. Now, in such a situation, a bankruptcy attorney will negotiate a settlement of the lien with the second mortgage holders for a paltry sum of money. In case they agree, the remaining unpaid amount can still be written off on their taxes by the bank and can get the cash in the meantime. After this, the debtor can avoid the classification of the transaction as a ‘Preferential Payment’ by waiting for 90 days. He or she can then file for a Chapter 7 bankruptcy, reaffirm that they are current on the first mortgage, and get a discharge on their other unsecured debts.
For further assistance and guidance on getting stripping in a Chapter 7 case, contact the Recovery Law Group at www.recoverylawgroup.com or call them on 888-297-6203.