Chapter 13 Lien Stripping/2nd Mortgage
San Diego bankruptcy lawyers use the phrases "lien stripping," "stripping down," and "strip down" to refer to the process of reducing a secured claim, generally a 2nd mortgage, to the value of the underlying collateral in a Chapter 13. Lien stripping results from the combined effect of 11 U.S.C.A. § 506(a) and 11 U.S.C.A. § 506(d) and comes about when a creditor's claim is bifurcated under 11 U.S.C.A. § 506(a) into secured and unsecured portions and the lien securing the claim is voided under a San Diego Chapter 13 bankruptcy to the extent that it is in excess of that amount of the claim that is an allowed secured claim. Under bankruptcy rule § 506(a), an allowed secured claim of a San Diego creditor secured by a lien on property in which the bankruptcy estate has an interest is a secured claim to the extent of the value of such creditor's interest in the bankruptcy estate's interest in such property and beyond that an unsecured claim; under § 506(d), a lien which is not an allowed secured claim is, with immaterial exceptions, void. In limited circumstances, the use of lien stripping in San Diego Chapter 13 bankruptcy has been rejected by the United States Supreme Court but not entirely foreclosed. Our experienced San Diego bankruptcy lawyers will let you know if a Chapter 13 debt relief strip down is right for you.
To understand the bankruptcy strip down concept, it should be noted that although the holder of a secured claim need not, in order to enforce its lien, file a claim in the San Diego debtor's Chapter 13 bankruptcy case, a holder which does not file a claim loses any chance of enforcing a deficiency judgment against assets of the Chapter 13 bankruptcy estate. As bankruptcy lawyers, we believe, if the debtor has no assets other than those securing the lien, the creditor has no incentive to seek a deficiency judgment and thus no incentive to file a claim.
Lien stripping is not available in San Diego Chapter 7 cases. Specifically, the Bankruptcy Code may not be used to strip down a creditor's lien on San Diego real property to that collateral's judicially determined value under 11 U.S.C.A. § 506(a). A Chapter 7 bankruptcy debtor may not strip off an allowed junior lien pursuant to Bankruptcy Code provisions governing the determination of the status where the senior lien exceeds the fair market value of the real property. The phrase "allowed secured claim" in the code does not have the same meaning as "allowed secured claim"; rather, "allowed secured claim" as used in § 506(a) means any bankruptcy claim that is backed, that is for which a lien exists, and that is not disallowed, and "allowed secured claim" in § 506(d) refers simply to whether security exists for the claim, not the extent to which the claim is backed based upon the collateral's value. As San Diego bankruptcy lawyers, we can possibly convert your case from a Chapter 7 to a Chapter 13.
Subject to certain requirements, a Chapter 13 debt relief plan may modify the rights of holders of claims, other than a claim backed only by a security interest in San Diego real property that is the debtor's principal residence, or of holders of unsecured claims. Similarly, a Chapter 12 bankruptcy plan may, subject to certain requirements, modify the rights of holders of claims or of holders of unsecured claims. Additionally, a Chapter 11 plan can modify the rights of holders of backed claims, other than a claim secured only by a security interest in the debtor's principal San Diego residence, or of holders of unsecured claims, subject to certain requirements. Bankruptcy lawyers agree, a Chapter 13 debtor is prohibited from relying on 11 U.S.C.A. § 506(a) to reduce an undersecured homestead mortgage to the fair market value of the mortgaged residence since the bankruptcy code prohibits such a modification of rights of a holder of a security interest where the lender's claim is secured only by a lien on the debtor's principal residence.
A Chapter 13 bankruptcy filing may be a very power tool to provide you with financial peace of mind. For over 35 years, the Law Office of Harold D. Thompson as been San Diego’s first choice as bankruptcy lawyers. We are San Diego bankruptcy lawyers that can get your debt relief case started for as little as $800.00. Do not let another day go by with out of control debt, contact our office TODAY for a free case consultation. 619.615.0767 or visit our other websites at San Diego Bankruptcy Lawyer Blog or My San Diego Bankruptcy.