Oftentimes, those filing for bankruptcy have concerns about losing their homes if they file. But you often do not hear about mortgage liens, and how they impact your bankruptcy filing. The Jones Law Firm knows you likely have many concerns about losing the family home, which is why we want to explain mortgage liens, lien stripping, and bankruptcy.
A mortgage lien is the legal right of the lender to take property from you if you fail to pay back the debt. Many consider this the actual loan, but it’s more specifically the interest the lender has in the property.
In a mortgage lien, you take the legal title to the property (ie. your home) and the lender holds a mortgage lien over it for the life of the loan. If you were to attempt to sell the property before paying off the debt, it will show up in your title search. While this wouldn’t stop the sale of the home, say if you wanted to downsize before filing for bankruptcy– the mortgage company would take what portion of the sale was needed to cover the debt before the lien is cleared.
Having to use some of the sales of a home to pay off a lender is not as big of a deal as you may think it is. However, having multiple liens on your home can make this slightly more complicated if you were to go through bankruptcy.
Given today’s economic climate, many homeowners have second mortgages that are unsecured loans. Knowing if your subsequent liens on your property are unsecured if you do decide to file bankruptcy as it will change if you can undergo lien stripping.
Lien stripping is the process of eliminating subsequent liens on a property during a Chapter 13 bankruptcy. This process allows you to remove the unsecured loans if you currently owe more than the home is worth. Lien stripping only applies to Chapter 13 filings in Ohio.
Lien stripping only works in bankruptcy when the original mortgage is worth more than the fair market value of the home. For example, if your home is worth $150,000 and you have an original mortgage of $100,000, a second mortgage worth $50,000, and a third mortgage of $25,000. Your first and second mortgages cover the value of the home, leaving the third mortgage unsecured. This means the court can “strip” the third loan while you still would be required to factor in the first two in your repayment plan.
In cases where your loans do not work out in such a clean way to allow for lien stripping, you may be able to challenge the appraisal.
Remember, in Chapter 13 filings you have to pay back a portion of your unsecured debts until the payment plan has been satisfied, then your qualifying debts are discharged.
When you are falling behind on your mortgage payments and are worried about facing foreclosure, you need to meet with an Ohio bankruptcy attorney who can walk you through the lien stripping process and determine your Chapter 13 bankruptcy eligibility. Nobody should have to suffer through these hard times–so don’t.
Falling on hard times is nothing to be ashamed of, and you shouldn’t be afraid to ask for legal help. If you are considering Chapter 13 bankruptcy and have multiple liens out on your home, you need to contact The Jones Law Firm. We can help you navigate the process and get you started on your financial future. We are here to help. Please contact The Jones Law Firm today to schedule a free consultation.