On May 10th, 2913, the U.S. Court of Appeals met and discussed the idea of lien stripping in some bankruptcy situations. According to reports, the U.S. Court of Appeals of the Fourth Circuit ruled that a debtor can strip a second mortgage and some junior liens in a Chapter 20 bankruptcy if the circumstances permit this. The verdict was decided in the case
In re Davis, No, 12-1184. Stripping a mortgage means effectively eliminating the mortgage altogether.
A Chapter 20 bankruptcy is not a formal filing. Instead, this is a way to refer to bankruptcy cases where a filer first filed for a Chapter 7 Bankruptcy. After emerging from the Chapter 7, the filer then enters a Chapter 13 bankruptcy. Because the two bankruptcy chapters would equal a 20 if they were added, the courts often refer to the process this way.
Individuals may file for both chapters of bankruptcy subsequently if they receive a Chapter 7 but this does not take care of all of their debt. For example, some costs like student loans, child support payments, and tax debts are not dischargeable. A Chapter 13 bankruptcy can give the debtor protection while he or she organizes a repayment plan to cover these extra debts.
The debtor cannot typically get a discharge in a Chapter 13 that was filed immediately after a Chapter 7. Filing for a Chapter 13 immediately after a Chapter 7 is typically just a method to create a repayment plan and receive protection while paying off these expenses. Another benefit to these back-to-back filings is the possibility of lien stripping. This is the process of removing any mortgages or liens on properties. While you cannot do this on your primary residency or first mortgage, you may be able to remove any other loans that are wholly unsecured.
This means that the equity in your home won't cover the balance on the junior mortgage or second mortgage if you subtract the balance of your first mortgage from the total equity. In some cases, bankruptcy courts will allow lien stripping in an initial Chapter 13 bankruptcy. The process is never permitted in Chapter 7 filings.
Currently, lien stripping is only approved for Chapter 20 bankruptcies in states governed by the Fourth Circuit. This means that individuals in Maryland, North Carolina, Virginia, South Carolina and West Virginia can take advantage of these benefits. Other states may permit lien stripping in an initial Chapter 13 bankruptcy. The U.S. Court of Appeals was concerned with Chapter 20 bankruptcies because many filers have already received their discharges at this time.
As a result, there are technically no discharges available in the bankruptcy. Still, the Fourth Circuit Court of Appeals has declared that in some circumstances bankruptcy courts can allow the removal of a second mortgage, junior mortgage or lien to assist a person in emerging from debt. Bankruptcy is a big decision, but may be the best way to remove debts from your life and help you to start afresh with a clean financial record.
You can also discharge certain debts like credit card debt, so that you won't be held responsible to cover the costs. Not all debts are dischargeable, but a bankruptcy lawyer can help you to see which expenses you may be able to eliminate. If you are considering bankruptcy, hire a local bankruptcy attorney to guide you through the process today. With a professional on your side, you will be informed as to whether you should file for a Chapter 7 or a Chapter 13 bankruptcy, or if you should do one process right after the other in a Chapter 20 bankruptcy.