According to a Hanover Park bankruptcy attorney, lien stripping can occur under certain circumstances. In a Chapter 13 bankruptcy case, if your first mortgage is more than the value of your house and you have a second mortgage as well, that that second mortgage is completely under secured. When you have a second mortgage that is completely under secured, you have the ability in a Chapter 13 to propose a plan that will technically strip that secured lien of the second lien holder.
By stripping the second mortgage, you are not eliminating the second mortgage but you then have the ability to repay that debt less than 100%. In a Chapter 13 bankruptcy case, you can treat a second mortgage that is totally unsecured the same way that you would treat a credit card bill or a medical bill or a personal loan and pay it back approximately 10% in many cases.
The way to strip a second mortgage lien is by adversarial complaint which goes out on notice and a motion is heard before the court. You might have to do a valuation on the real estate to determine whether or not the first mortgage lien eats up 100% of the equity in the property. Most second mortgage strip cases are going uncontested these days. By uncontested, I mean the lender is not even contesting the value of the house because they realize that the first mortgage completely eats any equity that might be in the property and the second mortgage is completely under secured. In those cases, if the client could successfully complete a Chapter 13 bankruptcy case with the lien strip, then that lien will be removed. It’s a great way for a homeowner to change the equity position in their property and all of a sudden get back to a level playing field once again.