What is lien stripping?

In a Chapter 13 bankruptcy, a debtor must bring all debts secured by real property that is the debtor’s principle residence current within and through a 3-5 year plan. However, because of a quirk in bankruptcy law, a junior lien that has no equity behind it is not considered secured, and thus the lien can be “stripped.” The debt can then be treated just like any other unsecured debt; meaning, it need not be paid off in full but only partially paid off per the Chapter 13 plan. The key here is that there must be no equity – none – behind the junior lien. Only then will it be considered unsecured and subject to lien stripping. (In re Frazier 448 B.R. 803 (Bankr. E.D. Cal. 2011).)

Source: C.A.R. Legal Department

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