While Chapter 7 bankruptcy is designed to help individuals and small businesses with low incomes and dischargeable debts, Chapter 13 is more beneficial to those who may have higher incomes yet still struggle with financial obligations. Because in most cases you cannot qualify for Chapter 7 bankruptcy with an income higher than the Minnesota median income level, Chapter 13 can be your saving grace for relieving debt and restructuring your finances in a manner that is suited to your income. If you’re considering filing for Chapter 13 bankruptcy in Waseca, MN, Behm Law Group, Ltd. can offer legal advice and assistance throughout the process.
The process of debt reorganization that takes place during a Chapter 13 case requires the examination of your different debts to determine how they can be handled. One aspect of your debts and your property that is analyzed is the subject of liens your creditors may have on your house, vehicle or other property. Creditors with such liens have debts that are secured or collateralized by your property. If you don’t pay the creditors, they can take their collateral, sell it and use the sale proceeds to retire the debts you owe them.
If your creditors have a secured liens on your property, you’ll have to continue repaying those debts directly to those creditors during your Chapter 13 repayment plan. However, there are some ways you can strip secured liens from the property serving as collateral, thereby turning them into unsecured debts. In most Chapter 13 repayment plans, only small percentages of unsecured debts are paid back.
Strippable Liens
If there is a “junior” lien on an asset you own, you may remove that lien and turn the secured debt into unsecured debt. A common example of a junior lien is a second or third mortgage on your house. For example, if you own a house that has a market value of $150,000.00 and there is a first mortgage with Creditor A in the amount of $155,000.00, a second mortgage with Creditor B in the amount of $25,000.00 and a third mortgage with Creditor C in the amount of $10,000.00, you have total mortgage debt in the amount of $190,000.00 against an asset that is worth $150,000.00. The house is collateral for all three mortgages. However, the mortgages with Creditor B and Creditor Care junior liens to the mortgage held by Creditor A. They are lower in priority with regard to foreclosure rights or collection rights to the property. The mortgages with Creditor B and Creditor C are wholly unsecured mortgages because the entire market value of the house is less than the amount of the mortgage held by Creditor A. If Creditor A were to foreclose its mortgage on the house, Creditor B and Creditor C would get nothing because the entire foreclosure sale proceeds would be extinguished through payment on the mortgage held by Creditor A.
When you have wholly unsecured junior mortgages or junior liens on your house, such liens can be stripped off of your house through the Chapter 13 bankruptcy process. When a junior lien is stripped, the subject mortgage debt, is treated as an unsecured debt. It is no different than a credit card debt or a medical debt. This means that you do not have to fully repay the debt. It will be completely discharged when your chapter 13 bankruptcy is concluded.
Understanding when you can and cannot strip a junior lien can be difficult without the guidance of a qualified legal professional. Take advantage of the expert counsel our bankruptcy attorneys provide for your bankruptcy case. Contact Behm Law Group, Ltd. at (507) 387-7200 today for more information about filing for Chapter 13 bankruptcy in Waseca, MN.
