Hi, Matt McArthur bankruptcy attorney, Clear Counsel Law Group.
Today I want to discuss liens, and the ability that we have inside of a bankruptcy case to be able to address liens that have been attached to property.
The first and foremost question is can we remove liens that have attached to property inside of a bankruptcy, and the answer varies.
It depends upon the type of lien and the situation and the type of bankruptcy case that you're doing. In some cases, yes; in most cases, probably no.
Liens That May Be Removed: Car Loans
Typically speaking, a bankruptcy discharge, in and of itself, is not sufficient to remove a lien from someone's property.
One example of this might be a car loan where we file for bankruptcy and the bankruptcy discharge removes that person's personal obligation to pay on the car loan.
What that means is, the car lender can no longer go the person and forcibly collect from them. They can't garnish their wages.
They can't levy their bank accounts to collect on that loan, but what the bankruptcy discharge did not remove is the lien that the car lender had on the car, so the car lender's lien remains in place. They can still repossess the vehicle after filing bankruptcy if payments aren't being made.
I Will Explain a Lien Strip
A classic example of a situation where we can deal with a lien is what we call a lien strip in a Chapter 13 bankruptcy.
These used to be extremely common when the housing market was depressed and after a lot of people had taken out second mortgages to cash in on the equity that they had found in their homes before the crash, and then after the crash all of a sudden they were left with a house that was worth a lot less than what they owed.
In a Chapter 13 bankruptcy, the law allows you to get rid of a second mortgage if certain conditions are met, and those conditions are if the house is worth less than what the first mortgage is owed.
If, for example, you had a house, and it was worth $200,000, and the first mortgage you still owed $220,000 on, and you had a second mortgage of whatever amount you could come up with.
It could be $1. It could be a $500,000 second mortgage. It doesn't matter the amount. As long as that first mortgage company is still owed more than what the house is worth, we can do a lien strip.
The lien strip, like its name suggests, is stripping off that second mortgage from being associated with the house or removing it from any connection with the house.
How Your Situation Will Be Improved After a Lien Strip
Once we've been able to get court approval to do a lien strip, we've established that the house is worth less than what the first mortgage is owed and the court enters an order approving our motion establishing that that is the case, that second mortgage in the bankruptcy is treated as a general unsecured creditor, the same way that a credit card company would be treated, the same way as a medical debt would be treated.
They no longer have those special rights that attach to the house, and their lien is removed. Following the successful completion of your case in a Chapter 13 bankruptcy and when you receive that discharge, that second mortgage is completely gone, completely resolved within the bankruptcy, and you only have to worry about keeping the first mortgage company happy and paid, moving forward after completion of your bankruptcy case.
That's just one example of our ability to deal with liens inside of a bankruptcy. If you have any questions about your situation, please come in and see me.
Consultations are free.
We offer the ability to come in and meet with an attorney, an experienced attorney, me, and I can give you the advice tailored to your specific situation and give you all the information you need to make an informed decision about how to best move forward to improve your financial situation.
I hope to hear from you soon. I'm Matt McArthur at Clear Counsel, the bankruptcy attorney.
Hope to hear from you soon.