If you are in the midst of monetary woes and having trouble paying your debts, you have the option of filing for chapter 13 bankruptcy. This type of bankruptcy provides you with a court-approved plan to repay your debts on a schedule that enables you to maintain a semblance of financial stability. In some cases you may be able to have some debts removed via lien stripping. If you are thinking about filing for a chapter 13 bankruptcy, the following primer can help you understand the lien stripping process.
Bankruptcy Lien Basics
In general, a lien is a legal claim that an entity such as a business or individual has over property owned by their debtors. Creditors obtain liens as a way to ensure that a debt will be paid. If there is a lien on items or real estate that you own, the creditor can take the property if you fail to pay your debt.
Filing and Submitting Lien Details
When you file for chapter 13 bankruptcy you must present the court with a list of all of your creditors and the amounts you owe. In addition, the court requires that you submit all sources of income, a list of all property you own, including items with liens, and a schedule of your monthly living expenses.
Filing all of these documents is an arduous process and many individuals hire attorneys to help them fulfill the court filing requirements.
Once an attorney files your paperwork, the bankruptcy court will appoint a trustee to your case to review your debts. If the trustee feels that the value of a lien is more than the original debt, such as a second mortgage on a house, they can "strip" the lien and remove the debt from your record. In this way, lien stripping resembles chapter 7 bankruptcy when some unsecured debts are discharged by the court.
For liens not removed by the trustee, your lawyer will file motions with the bankruptcy court on your behalf to remove liens on other property. If the creditor does not object, the judge handling your case may grant the motion. Even after the judge rules to remove the lien, a creditor can file an appeal and your case may move to an appeals court.
Types of Lien Stripping
Your attorney will scrutinize your list of property to determine what liens may be removed by the court. It is common for courts to remove the following types of liens:
- Second and third mortgage
- Taxes owed to government entities
Be aware that federal tax liens may stay in effect throughout and after your bankruptcy according the Internal Revenue Service. However, the amount of the federal taxes you owe may change as a result of your bankruptcy.
Interpretation of Bankruptcy Laws and Motions to Avoid Liens
Although bankruptcies are based on federal laws, the interpretation of some of the regulations is up to individual judges. The ability to take advantage of interpretations that favor your situation is another reason why it is crucial for you to hire an experienced attorney to handle your case.
If a creditor disputes a motion filed by your lawyer, the judge has the authority to decide the outcome of the challenge. The judge in your district may use cases filed in other parts of the country to help determine whether or not your lien will be stripped.
Overall, filing for chapter 13 bankruptcy is a complicated process that you should not undertake alone if you have numerous debts and feel overwhelmed by liens and pesky creditors contacting you in every legal way possible. Get more information on lien stripping in chapter 13 bankruptcy from professionals.