Lienstripping...

…is not something you do in the privacy of your homes.

It is in fact, a term used to describe the determination made by a bankruptcy court that a previously secured second lien on real property is no longer secured by the property. In a Chapter 13 case then, the so-called stripped lien becomes an unsecured debt for the purposes of the Chapter 13 Plan. A portion of the original debt is then paid off over the term of the plan as part of the unsecured pool. Thus, after the 13 discharge, it’s gone, both as a personal liability and a lien on the property.

Secured debt and unsecured debt are two different classes of claims in a Chapter 13 and are treated differently. Non-priority unsecured debt is at the lowest end of the debt totem pole. A requirement of a Chapter 13 plan is that this class of creditors receive more than it would under a Chapter 7 (which is zero). When the lien is “stripped”, it becomes a part of this lower-class debt (unsecured debt), to the benefit of the debtor.

Please don’t try this at home. This is intended as an informational discussion only. There are many factors which can affect navigating through a bankruptcy case. Certain options may or may not be available to a particular debtor. Trustees and judges are people with different temperaments and views. For best case results, consult your attorney.

Written by Scott Reece