An underwater mortgage means that a homeowner owes more money on his or her home than what it is worth, and this situation often places stress and financial burdens on the homeowner.
If you have an underwater mortgage and are severely struggling to stay afloat, you should consider talking to a bankruptcy lawyer about Chapter 13 bankruptcy. Through Chapter 13 Bankruptcy, you may be able to use lien stripping to reduce the amount you owe on your house. Here are a few things to know about lien stripping.
What Is Lien Stripping?
A lien is a right someone has to one of your assets. For example, when referring to a mortgage, a lien represents the money you owe to the mortgage lender. You might have only one lien on your house, which would be your regular mortgage payment, or you might have several liens if you have a second or even a third mortgage.
Lien stripping allows you to eliminate liens on your house, however, it is only offered in Chapter 13 bankruptcy cases, and you must qualify. If the court approves lien stripping, the debt you owe on your second or third mortgage will be forgiven.
How Do You Qualify for Lien Stripping
Before you get too excited about the possibility of lien stripping, you need to understand how you qualify, which is somewhat confusing to most people. The basic things you need to know are:
- The current value of your house
- The total amount of money that you owe on all mortgages you have on the house
Once you have this information, you can show it to your bankruptcy lawyer. He or she will analyze the details to determine if you qualify for lien stripping.
The main thing to understand is that you will only qualify for lien stripping if you owe more money on your house than what it is currently worth, and if you have at least one junior mortgage (also known as a second mortgage). In other words, the only liens bankruptcy strips are unsecured liens, which refer to any loans other than the first mortgage on your house.
For example, assume you owe $225,000 on your first mortgage and your house is worth $200,000. If you have a second loan of $100,000 on the house, you could strip the entire second lien because you owe more on your house with the first loan than what the house is worth.
As long as you owe more on the first mortgage than what the house is worth, Chapter 13 bankruptcy will strip all other loans you have.
What Other Benefits Does Chapter 13 Offer?
Filing for bankruptcy has consequences, so you should carefully consider whether or not it is the right option before you proceed. If you are considering Chapter 13 bankruptcy, a lawyer can help you understand the other benefits it may offer you.
One benefit it offers is a manageable to repay the debts you owe. Chapter 13 bankruptcy can also stop foreclosures and repossessions from occurring. Through Chapter 13, you have a way to keep the things you own by repaying them slowly over a period of three to five years.
If you cannot keep up with your house payments or any other types of debts you owe, contact the Law Offices of John A. Foscato, S.C. We can help you determine if Chapter 13 bankruptcy could provide the relief you need. We offer free consultation visits so you can receive the information you need to make a wise, informed decision. Don't hesitate to contact our office in Green Bay or Oconto today.