Discharging Liens Through Bankruptcy

We live in a world where creditors often have the upper hand. As a consumer, there is not a lot you can do to renegotiate the terms of a loan after the economy takes a hit.

At Ford & Semach, P.A., we help level the playing field. Located in Tampa, our lawyers help individuals and businesses throughout Florida “strip” or eliminate excess loan debt through Chapter 13 and Chapter 11 bankruptcy.

What Is Lien Stripping?

Lien stripping is the process of eliminating unsecured debts from pieces of real or personal property. Liens are “secured” to the extent of the value of the assets. Lien amounts in excess of the property’s value are unsecured and dischargeable in bankruptcy.

A common scenario is a second mortgage. Let’s say you took out a $100,000 mortgage to purchase your home. Later you took out a second mortgage for $50,000 to remodel. The housing market crashed, and today your home is worth only $100,000. The result: Your second $50,000 mortgage is unsecured and can be eliminated, or stripped, through bankruptcy.

Another common example is a car loan. If your car loan is more than the value of your car, you can strip away the excess debt down to the present value of the car. The unsecured portion of the loan will be discharged through bankruptcy.

Other courts must rely on the terms of the purchase agreement. In these cases, lenders win because the loan document states you will pay the money. Bankruptcy courts are courts of equity. They look beyond the corners of the document and do what is fair.

Types Of Liens That Can Be Stripped

Below are the main types of liens you can strip:

• Tax liens: You can remove some tax liens when they attach to property that holds little or no value after you pay other debts. You must meet strict court conditions to eliminate the related tax debt.
• Mechanic’s liens: A debtor can file to strip these contractor-filed liens without collateral backing them.
• Judgment liens: If a lien from a lawsuit affects your legal exemptions, such as a homestead exemption, you can often remove it under bankruptcy law.
• Junior mortgages: If your home has no value left after the primary mortgage, you can strip second or third mortgages, reducing your debt.

Stripping these liens can lower your debt and help you hold onto key assets, paving the way for financial recovery.

Chapter 13 Vs. Chapter 11 For Lien Stripping

Lien stripping is available in two types of bankruptcy: Chapter 13 and Chapter 11. Each works differently:

• Chapter 13 bankruptcy: Popular for individuals with regular income, Chapter 13 involves a three- to five-year repayment plan. At the plan’s conclusion, the court may eliminate lien portions that lack collateral backing, helping reduce your debt.
• Chapter 11 bankruptcy: Often used by businesses or high earners, Chapter 11 is more flexible but complex and costly. It suits cases with large secured debts or property exceeding Chapter 13’s limits.

Your income, debt and financial goals determine which option you should take.

Legal And Financial Implications Of Lien Stripping

Lien stripping can transform your financial situation by:

• Reducing secured debt to the actual value of your property.
• Converting unsecured debt portions into dischargeable amounts, freeing you from those obligations.
• Allowing you to keep property that might otherwise be unaffordable.
• Improving your long-term financial outlook by lowering your debt burden.

However, lien stripping requires filing specific motions or legal proceedings in bankruptcy court. Success hinges on accurate property valuations and proper documentation.

Potential Challenges And How To Avoid Them

Lien stripping offers significant benefits but comes with challenges:

• Inaccurate property valuation: Misjudging your property’s value can lead to a denied lien-stripping request.
• Missed deadlines or errors: Failing to follow court procedures or meet deadlines can block debt discharge.
• Chapter 13 eligibility: High debt or irregular income may disqualify you from Chapter 13, limiting options.<
• Creditor objections: Creditors may challenge your case, causing delays or complications.

Partnering with experienced bankruptcy attorneys is crucial to navigate these issues.

We Will Evaluate Your Debts And Find The Best Path To Relief

Lien stripping is extremely complex. It is important that you consult with an experienced bankruptcy attorney who understands the nuances of lien stripping. At Ford & Semach, P.A., our lawyers will thoroughly examine your loan documents to determine the priority of liens and identify those that are unsecured. Based on your assets and your debts, we will recommend Chapter 13 or Chapter 11.

For more information about lien stripping, call 813-302-1258 or email us here. Our attorneys will meet with you, review your circumstances and help you find the best path to debt relief.

We are a debt relief agency. We help businesses and individuals file for debt relief under the Bankruptcy Code.