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Facts

What is a lien?
A lien gives creditors different kinds of rights in the owner’s property. These rights can vary depending on the type of property (whether it involves real property, such as a home or parcel of land, or personal property, such as vehicles, appliances, or electronics) or by how the lien occurred (such as by financing the purchase of the property, putting up the property as collateral for the loan, or by operation of law).

Usually, liens must be paid off when the property is sold. Failure to pay off the lien could result in the creditor the right to sell the property if the debt is not paid. You may or may not be aware that a particular lien exists or how it can affect your ownership rights. Liens that you probably know about include mortgages or deeds of trust, vehicle loans, seller-financing of property (such as a washing machine from Sears, or a computer from Best Buy), or improvements to property (such as having repairs made to your house or car).

Liens often remain effective despite filing Bankruptcy and often have no expiration date, so in order to keep the property you may have to pay it off.

What is lien stripping?
“Lien stripping” is a term used to describe the removal of a lien for a second or other so-called subordinate mortgage or deed of trust from real estate. Certain criteria must be met in order to be considered for “lienstripping” and attorney representation is highly recommended. Lienstripping is performed under a Chapter 13 Bankruptcy and is available even to those who have previously filed bankruptcy. Bankruptcy can also remove other kinds of liens, depending on the particular circumstances. When lienstripping is performed the creditor no longer has the right to take the property if payment is not made. Under Chapter 13 Bankruptcy Law, the Court has the power to do this. Not all liens can be removed through Bankruptcy. However, liens for Court judgments can be removed in either a Chapter 7 or Chapter 13 Bankruptcy.

Who can benefit from lien stripping?
If your property has less value than the amount of earlier liens, lien stripping can remove a second or third mortgage or deed of trust on real estate that has fallen in value. For example, if a house was purchased for $400,000, it may now be worth only $310,000 today. If it was financed with a first mortgage (or, to be more specific, a deed of trust) for 80% ($320,000) and there is a second mortgage of 20% ($80,000), the second mortgage can be stripped in a Chapter 13. In a Chapter 13 proceeding, the Court has the power to re-define debts as either "secured" or "unsecured," and with the proper evidence the Court will allow the lien to be stripped from the property. Once the lien is stripped, although the debt still is effective, it can be "discharged," or eliminated, by completing the Bankruptcy.

What if I owe more on personal property?
In some instances, if you owe more on personal property (such as an automobile, television, computer, etc), the lien can be "crammed down" so that you pay only the present value of the property to keep it. The lien can’t be stripped unless the property is worth absolutely nothing, and if that were the case, there wouldn’t be any need to strip off the lien.