Lien Stripping Chapter 7 Bankruptcy?
Lien Stripping in Bankruptcy Chapter 7 Stuart, Port St. Lucie, and Jupiter.
This is a very interesting challenge in the law of Bankruptcy and Bankruptcy attorneys have been pushing for this for years. First, it is important to know what I am talking about. When purchasing a home with financing, it is usually secured with a mortgage. Prior to this current recession, as house prices increased in value, homeowners availed themselves of this new equity in their home through Home Equity Lines of Credit (HELOC’s) and Second Mortgages. When the bubble burst and housing prices dramatically dropped, the equity that was used to support the HELOC or the Second Mortgage disappeared. Therefore, it can be argued the second mortgage or the HELOC is nothing more than an unsecured mortgage and should be subject to discharge in Chapter 7 the same as any other unsecured debt (i.e. credit card debt).
In a recent 11th Circuit Court of Appeals case (In Re: McNeal, Case No. 11-11352 (11th Cir., May 11, 2012)), the court ruled that lien stripping was available. As a result, issues regarding the value of the property will be more strictly scrutinized and challenged by the creditor subject to this interpretation. So, for example, if a property had a market value of a $100,000.00 and the first lien was for $110,000.00 and the second lien was for $50,000.00. There is the possibility the second lien could be stripped subject to the ruling of the court and all the proper proofs and circumstances surrounding the filing, itself. If, however, the first lien was for $95,000 and all the other factors in the example remained the same. The possibility to strip the second is gone.
As interesting as this decision is, it is not set in stone. The decision could also be reversed by the U.S. Supreme Court.