How can lien stripping reduce your debt?

People who file Chapter 13 bankruptcy can discharge some of their debt through a process called lien stripping. This is most commonly done with vehicles. However, liens can be stripped from other assets, like homes, as well.

According to the Bankruptcy Code, a lien is a secured claim only if there is value attached to it. If the market value of an asset is currently less than the lien, the difference is considered unsecured. For example, if you have a $30,000 car loan, but your car is currently valued at just $20,000, then $10,000 of it is an unsecured claim and the lien can be stripped down to $20,000 and $10,000 is dischargeable debt.

Another common use of lien stripping is to discharge second and third mortgages or home equity lines of credit on homes that are “underwater,” or worth less than the owners owe on them. If the home has a market value below the secondary secured debt, it can be eligible for lien stripping.

At Jeffrey M. Rosenblum, P.C., we often help clients determine what assets are eligible for lien stripping, ensure that their property is valued accurately and help them reduce their debt as much as possible. We work to help people save their homes from foreclosure.

When you’re mired in debt, it’s important to understand all of your options including Chapter 13 and Chapter 7 bankruptcy. We have three Long Island offices (located in Armonk, Melville and Great Neck) and one in Westchester County (in Rockville Centre). We work with clients to find the right solution for their individual situation so that they can get a fresh financial start.