September 18, 2018

What is “Lien Stripping” and Can I Use it to Reduce my Mortgage Payments

mortgage lien stripWith the decline in Atlanta area housing values, a seldom used bankruptcy technique has taken on new life.  The technique is called “lien stripping” and it arises from Bankruptcy Code Section 506(a) and (d).  A lien strip allows a Chapter 13 debtor to use the power of the Bankruptcy Court to transform a secured second mortgage or home equity line of credit into an unsecured debt, thereby eliminating a monthly payment and reducing total debt by tens of thousands of dollars.

Here’s how it works: Let’s say that you own a home worth $250,000.   Perhaps that home was worth $350,000 three or four years ago but its market value has dropped because of the recession.  The balance on the first mortgage is $270,000 and the balance on the second mortgage is $45,000.

In this case, a Chapter 13 debtor can ask his bankruptcy judge to “strip away” the second mortgage debt since all of the value in your home is encumbered by your first mortgage.  In other words, if you were to sell your house, the first mortgage lender would not be paid in full and the second mortgage lender would get nothing.  The second mortgage lender is, therefore, unsecured.

Lien stripping only works when:

  • you are a debtor in a Chapter 13 case
  • the fair market value of your house is less than the balance due on your first mortgage

The Clerk’s Office of the Northern District of Georgia has provided us with sample lien stripping motions, which you can review by clicking on the link.

I suspect that mortgage companies will mount challenges to lien stripping.  There has already been a Minnesota case where a local judge there refused to allow lien stripping.   One day this issue may be considered by the United States Supreme Court.  For now, however, most bankruptcy judges will allow lien stripping and if your second mortgage or HELOC is fully unsecured, you may want to consider it as well.

My friend and colleague, Charleston bankruptcy lawyer Russ DeMott has published a clear explanation of how he approaches the mortgage lien stripping process (in his district, they refer to lien stripping as “mortgage stripping” but the concept is identical.  You can read Russ’ post by clicking on the link.  Russ correctly points out that out of banks and mortgage companies have not cooperated in out of court mortgage modifications and that lien stripping remains perhaps the most reliable tool to modify a mortgage.

I have successfully “stripped” several junior mortgages.  Not surprisingly, the main issue that arises has to do with the fair market value of the home.  You may need to pay for an appraisal to convince the judge that the second mortgage is, in fact, fully unsecured.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. Rozalyn Landisburg,Esq. says:

    I practice in the E.D. of Pennsylvania. In this district an adversary proceeding is
    required to lien strip. It should be required every where pursuant to the U.S. Bankruptcy Rules which require adversary proceedings where an attempt is made to alter or modify liens.

    Therefore a Motion ( or contested matter) is not sufficient. Lien stripping is common and
    is also available for non primary residences under U.S. 1322(b) (2) pursuant to which debtors
    can modify the rights of holders of mortgages secured by non primary
    residences or primary residences if the mortgage holder took additional security.

    Roz Landisburg, Esq.

  2. In the District of Oregon, our judges prefer the motion method. I believe that this is actually a simpler method, and saves the client money. The matter is resolved more quickly, as well.

    The key to the issue is valuation. It seems that many creditors are failing to respond to these issues as well, as long as the court has a viable valuation. What the creditors do seem to be doing is waiting for the Ch13 plan failure of one sort or another. Debtors seem to forget that, while the motion may be granted at the start of the plan, to succeed, the plan must be completed and the discharge granted to fully strip the lien.

  3. hello sir,can Tax liens stripped off in reorganization proceedings?

  4. Not in Chapter 13.

  5. Hello Jonathan, if we file a Chapter 13 case, will the lien stripping motion be filed before the plan is confirmed or AFTER the plan is confirmed. I have heard that it can only be filed 90 days after the plan is confirmed, is it true?

  6. Would if my first loan is 226,000.00 and the appraisel comes in at 226,001.00 and my second is a 350,000.00 equality line of credit?
    If I cannot do a chapter 13 can there be a negotiated to lower the equality line for the 350.000.00?
    Also can you still keep your house if you filed chapter 7?
    I also here there was something called a Chapter 20 , Is this true?

  7. Rick, if your HELOC is fully unsecured you may be able to strip that 2nd lien in a Chapter 13 – you do need to speak to a lawyer about this process. Negotiation is always an option but my experience has been that it is easier said than done. You can keep your house if you file Chapter 7 but you will have to deal with both mortgages. The term “Chapter 20” refers to filing a Chapter 13 after filing Chapter 7 – it is not as easy to do as it once was because of changes to the Bankruptcy Code about repeat filings – this is a matter of legal advice. You are asking good questions but you need legal advice specific to your situation.

  8. Sarah, I typically file my lien strip motion prior to confirmation. Your district may have different local practices however.

  9. From reading posts, it appears that a lien strip motion cannot be filed against a 2nd mortgage if bankruptcy was a Chapter 7 (discharged in 02/2012). I did not reaffirm either mortgage in bankruptcy, and have continued paying. It is becoming extremely difficult to continue paying the 2nd mortgage, especially after being out of work for 18 months but making a much lower salary when I did obtain a new position. Is there anything that can be done about the 2nd? I have tried to modify/refinance twice to no avail.

  10. wrong date given for discharge, was 02/2010, many apologies

  11. Maryann, if you did not reaffirm your 1st or 2nd mortgage and you received your Chapter 7 discharge, I question whether you have any personal liability post-bankruptcy to either mortgage company. You may want to talk to your bankruptcy lawyer about whether you have the option of simply walking away, or approaching one or both lenders with a modification proposal.

  12. I am in a chapter 13 bankruptcy in Tennessee. The chapter 13 began in 2010 and I am due to end in 2014. Is it possible to try to strip my second mortgage since I have been in the bankruptcy for two years now or is it too late now.

  13. Gayle, I don’t think it is too late.  You should discuss with your lawyer.

  14. Natalie McCollough says:

    My husband and I filed Chapter 13 and we are paying the entire second mortgage back in full. Why is this the case, when we were under the impression that our second mortgage would be stripped.

  15. You have to file a motion to strip the lien. Generally you can only strip a lien if the value of the house is less than the balance due on the 1st mortgage, thereby making the 2nd mortgage “unsecured.”

  16. I would like to no if I can file lien stripping and not file chapter 7 or 13. What is the cost for filing this motion in the courts.

  17. Alex Rodriguez says:

    What if I only one mortgage can I still strip it

  18. No, mortgage strips only work on unsecured second mortgages.

  19. I have an unusual situation that so far no one can answer. We filed chapter 13 in 2007 and received a discharge in 2012. We were unaware of a judgement lien a credit card company had won and placed on our home. Our attorney did not check and we were underwater in our mortgage so he said he did not claim an exemption?? If this was a “junior” lien to our mortgage and HELOC , can we reopen the case and strip the lien? Also – even though we did not claim any other exemptions to protect equity as we had none, wouldn’t our home be “exempt” and therefore we should be able to reopen the case and avoid the lien as it impairs our “exempt” property?
    FYI – the credit card company DID NOT file a claim as a SECURED creditor – they filed as unsecured and were paid something in the plan.
    The lien is worthless as I understand it so WHY can’t we get rid of it???( I KNOW – we had an inexperienced and not very thorough lawyer) but that is not our fault – just looks like we are paying for it!!

  20. PC, you raise a lot of issues. Before trying to reopen I would see if there is any argument under state law that the credit card company should be barred from pursuing any remedy because they filed unsecured – can you attack the lien on that basis, i.e. that they negligently or intentionally misled you and the BK court about the nature of their lien. Second, it appears to me that the BK discharge would have wiped out any personal liability you have to the credit card company – their only claim is based a lien that had no value. I would suggest that you talk to a real estate lawyer in your area to see if you have any leverage (perhaps to settle for pennies on the dollar) under state law. The threat of reopening may be leverage as well. Before trying to reopen look to see how the judge assigned to your case treats reopening requests – some are more open to it than others. Best of luck to you.

  21. Than you Jonathan! You are the only soul brave enough (or sharp enough?) To answer 🙂
    I have researched and found several cases somewhat similar and they were able to reopen and remove the lien.
    My confusion on this is; if the lien has no value what good is it? Other than to cause us problems and no being able to refinance!
    If the cc company can’t collect again why is it even valid,or still on our property? I just dont b understand why or how a worthless lien can still be attached ?
    I think our attorney does not want to reopen the case because I paid for a copy of v the complete file and he made several big errors. I think he would be embarrassed and or maybe reprimanded or fined? Over them?
    I have called another very prominade attorney here. After 3 weeks and no word I called them back. They said it was,a complex case and she was still researching it. That was 2 months ago!! I am afraid to call her back but we have got to do something. T g and you again for your help!

  22. We have two second mortgages one for 45k and one for 25k. We will complete our bk13 this month 5-2017. my attorney will not call us back . The first mtg is 108,000 can we get a lien strip.

  23. In order to lien strip the value of your property must be more than the amount of the 1st mortgage – in other words, the second mortgage must be fully unsecured.

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