Lien Stripping

Certain Chapter 13 filers may be able to get rid of a second mortgage or home equity line of credit (HELOC) (referred to as “lien stripping”).  With the real estate market going down over the past few years, some homeowners owe more on their mortgages than their homes are worth.  A Chapter 13 bankruptcy may enable you remove a second mortgage or HELOC lien from your home and reduce the amount that you owe.

In order to remove or strip down a second mortgage or HELOC, the value of your home must have declined enough so that the loan or HELOC is no longer secured by your equity in the home. To prove this, you will need to obtain a professional appraisal of your home before you file bankruptcy. That appraisal must show that the fair market value of your house is so low that if your house were sold there would not be enough money after paying the first mortgage to pay anything to the second mortgage holder.

Example: Your balance on your first mortgage is $400,000. You have a second mortgage in the amount of $50,000. Your home is currently worth $375,000. In this scenario, your second mortgage is no longer secured by the equity in your home, since only $375,000 of the first mortgage is secured by your equity. Because the second mortgage is no longer secured, you can seek to strip it off.

You may not strip off a second mortgage that is partially secured by your equity in the home. This means that if the value of your house is sufficient that even part of your second mortgage could be paid out of a sale, it is partially secured and the second mortgage cannot be removed through bankruptcy.

Example: Your balance on your first mortgage is $400,000. You have a second mortgage in the amount of $50,000. The current market value of your home is $425,000. In this scenario, your second mortgage is secured in the amount of $25,000. This is because your home value ($425,000) minus the balance of your first mortgage ($400,000) leaves you with $25,000 in equity, which secures part of your second mortgage. You will not be permitted to strip off the second mortgage in this case.

In the District of New Jersey, debtors are required to address the lien stripping in their Chapter 13 plan. If you raise the issue in your plan, and the second mortgage or HELOC lender objects, the court may schedule a hearing where you and the lender can present evidence.  Please note that the burden of proof is on you.

If the judge rules in your favor, the lien secured by the second mortgage will be removed from your home, and the loan amount will become part of your unsecured debt, and paid along with your other unsecured debt according to your Chapter 13 plan, typically as a fraction of the actual loan balance.

Testimonials

We selected you because you took time to talk with me at first contact. I believe it was a good 15-20 minute phone conversation involving a mix of business and personal. In fact, you were the only attorney that asked about what it is we wanted. Every other attorney merely quoted a rate for services. As I recall, you did not even mention money until I asked near the end of the conversation. You give attorneys a good name. I only wish the majority of the other attorneys on this planet had your knowledge and demeanor. Satisfied Attorney Client After years of frustration with an incompetent attorney, I had the good fortune of finding Mr. Whelan. His clear and concise communication style led me to hire him after a free consultation and enabled speedy filing of my case. The difficulties of managing a NJ rental property from CA became manageable thanks to his expertise and knowledge about the complex rental laws in NJ. You took time to talk with me at first contact. You were the only attorney that asked about what it is we wanted. Celeste B. I will never forget my attorney's dedication to obtaining a substantial recovery for me under a severe time deadline and with no cooperation from my former lawyer. Also, Mr. Whelan was very accommodating of my limited English throughout the case and my lack of understanding of the American court system. Personal Injury Client Chuck is well versed in business law, real estate law, landlord and tenant law as well as Planning, zoning and land use. Believe me we challenged his patience, creativity and legal knowledge. Chuck's intellect and ability would be enough. However, his integrity is what impresses me as much, if not more. I would highly recommend Chuck for a variety of legal services without hesitation. We are grateful to be associated with Chuck and appreciate his hard work on our behalf. Happy Small Business Client Mr. Whelan is a great lawyer. His main concern is always the client. In every matter that he has represented me, I have been very happy with the way everything worked out. I know I can trust him to protect my interests and rights. Satisfied Small Business Client Mr. Whelan provides critical services to our executive management team. He provides a very straight-forward and practical approach to our legal issues. He is timely and extremely reliable. Happy Client An extremely capable and trustworthy attorney with an excellent legal skill set. He delivers the results you want and practices his craft with a clear sense of honor and integrity. I would recommend him unequivocally to any person or business needing legal representation or counsel. Happy Client Mr. Whelan is a great lawyer. His main concern is always the client. In every matter that he has represented me, I have been very happy with the way everything worked out. I know I can trust him to protect my interests and rights. Satisfied Client Mr. Whelan is very professional and honest. He has a tremendous knowledge of all areas of law and is very practical in his approach. He is extremely effective at bringing a swift conclusion to various matters. He is well respected by his peers. I would highly recommend Mr. Whelan for any real estate, litigation, bankruptcy or contract issues. Happy Small Business Client Charles has been nothing but friendly and professional with handling my legal needs. Charles has also handled most of my family’s legal matters and real estate closings. I have known Charles for many years and whenever I have needed good advice, I turn to him. Over the years he has become a true friend that I would recommend his services to anyone. Thanks Chuck for all you have done for me! Satisfied Client I have hired Mr. Whelan for several deals over years. I know he will respond quickly and provide professional guidance through every phase of my real estate deals. He is easy to talk to and will make you feel like you're his top priority client. Satisfied Real Estate Client Charles gave me sincere and professional legal advice and even guidance how to understand the situation for free. His opinion was highly professional with deep understanding for the law. I trust him and recommend him for anyone who need a first class trustfully lawyer. John Soliman Mr. Whelan is the absolute BEST!!! He's super professional, to the point, yet very compassionate. He knows his stuff!! I found him online and he got back to me ASAP and we got the ball rolling with no holdup. I would definitely recommend his services with no hesitation. He's trustworthy and won't waste your time which everyone can appreciate. Give him a call!! Sadiyah Thompson Previous Next

New Brunswick Office

Contact Us

Charles D. Whelan III has been committed to excellence for over 30 years. With offices located centrally in New Jersey, he is able to provide businesses and individuals with excellent legal services.

Click the Button Below to Get In Touch

Schedule a Consultation

Watchung Office

Scroll to Top