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What Is Lien Stripping In a Bankruptcy?

When applying for a bankruptcy you are faced with all types of legal terms. This is just one of the many reasons why you want to utilize the services of a qualified New Albany bankruptcy attorney to assist you through this entire process.

One of the terms that may arise if you are going through a Chapter 13 bankruptcy is lien stripping. This is a process that is carried out in a Chapter 13 bankruptcy that involves a second or third mortgage. The process makes this particular debt one that becomes unsecured rather than secured.

Debt Priority

When it comes to bankruptcy debts are set according to their priority. A mortgage or lien that is put on your house will be categorized in its priority according to when the lien was recorded. In general those liens that have the earlier dates for being recorded will take priority over the newer ones that have been registered. This means that the first mortgage lender usually takes priority over the other mortgage lenders. This is why it is a much easier to get a first mortgage as opposed to a second or third.

It often turns out in a bankruptcy that the second mortgage holder does not get any repayment. So if the financial circumstances turn out that it doesn't look like the second mortgage or the third for that matter is going to receive any money based on the sale of the house, then the mortgage is now totally unsecured and can be lien stripped through the Chapter 13 bankruptcy. The laws of each state are different, and in some cases these junior liens can be stripped in a Chapter 7 bankruptcy, but again this depends on the state law.

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