A Virginia homeowner who takes out a home equity loan is said to have obtained a second mortgage. The home equity lender is considered to have a secondary position on the home’s title. However, that lender can still foreclose on a borrower who fails to make payments. It’s possible to strip a second mortgage lien by filing for Chapter 13 bankruptcy.
In a Chapter 13 proceeding, the second mortgage can sometimes be converted from secured to unsecured debt. This typically happens when a borrower has little positive equity or has negative equity in the home. At the end of the three- or five-year repayment plan, a debtor can move to have unsecured debts discharged. After a debt is discharged, the borrower generally has no obligation to make future payments. In some cases, one will need to take extra steps after the repayment plan ends to formally strip a lien.
Someone who has had a lien stripped may ask that information associated with the loan be removed from their credit history. A creditor might also be required to return a promissory note upon request. However, someone who has recently had a lien stripped should expect to receive some resistance from creditors after making such a request. An attorney might be able to make such requests on a debtor’s behalf.
There are many potential benefits to filing for Chapter 13 bankruptcy in addition to having a lien stripped. Debtors may be allowed to seek a cramdown on a vehicle, which means that they will only pay what the car is worth as opposed to what they owe on a loan. Alternatively, debtors may return property to their creditors in lieu of having assets repossessed or going through the foreclosure process.