Avoiding Liens In Chapter 13 Cases

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Florida is still one of the leading states for foreclosed properties. To deal with foreclosure, many bankruptcy debtors utilize “lien stripping” to avoid second mortgages, secured lines of credit, and homeowner association liens on their real property. Once a lien is stripped or avoided, the bankruptcy debtor’s personal liability for the obligation is extinguished and the creditor loses the right to foreclose.

To strip or avoid a lien, a bankruptcy debtor must prove that there is absolutely not one dollar of equity in the home, i.e., the balance of their first-position mortgage loan was more than the value of the home on the day the Chapter 13 bankruptcy case was filed. In December of 2015, the Supreme Court ruled that such liens could not be avoided in Chapter 7 bankruptcy.

Title 11 (the Bankruptcy Code) treats a Chapter 13 bankruptcy filing as a personal reorganization. In a Chapter 13 bankruptcy, debtors utilize a three- to five-year plan to pay mortgage arrearages, mortgage and car payments, and outstanding tax obligations. The debtor’s disposable income, if any, is paid to unsecured creditors.

However, to strip or avoid the lien, Chapter 13 bankruptcy debtors must complete their Chapter 13 bankruptcy plan by making all payments (whether 36, 48 or 60) due under the plan and receive a Chapter 13 discharge. If the Chapter 13 case is dismissed or converted to a Chapter 7 case, then the lien will not be avoided or stripped but reinstated.

Reduce stress and the uncertainty that accompanies trying to save your home from foreclosure. The experienced Fort Lauderdale bankruptcy attorneys are here to help you if you default on a mortgage and your financial position necessitates the consideration of a bankruptcy case filing under Chapter 7, 11, or 13.If you require assistance with any form of loss mitigation, contact our office today by calling 954-523-HELP (4357) and see how we can help.