How to Remove a Lien After Chapter 13 Discharge in Florida

By Mary Jane Freeman

Floridians who wish to hold on to valuable assets, such as the family home, often choose to file for Chapter 13 bankruptcy when they find themselves drowning in debt. They get to keep their property while paying some or all of their debt over an extended period of time. If a property has multiple liens on it, Chapter 13 can even strip these liens from the property. As long as a debtor successfully completes his payment plan, creditors typically release the liens automatically when the bankruptcy is discharged.

Floridians who wish to hold on to valuable assets, such as the family home, often choose to file for Chapter 13 bankruptcy when they find themselves drowning in debt. They get to keep their property while paying some or all of their debt over an extended period of time. If a property has multiple liens on it, Chapter 13 can even strip these liens from the property. As long as a debtor successfully completes his payment plan, creditors typically release the liens automatically when the bankruptcy is discharged.

What Chapter 13 Does

Individual debtors in Florida commonly file for either Chapter 7 or Chapter 13 bankruptcy. Chapter 13 is popular among debtors who want to hold on to important assets, such as a home or vehicle. In contrast, Chapter 7 filers give up most of their assets to pay their debts. Chapter 13 filers, in contrast, can keep their assets while paying down their debts under a three- to five-year repayment plan. If any debts remain unpaid at the end of the repayment period, they are often discharged in the bankruptcy and the debtor is no longer legally responsible for those debts.

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Lien Created

When a repayment plan is created in a Chapter 13 bankruptcy, debts are divided into two categories: secured and unsecured. Generally, secured debt is debt that is backed by collateral. For example, when a Floridian purchases a home, the mortgage lender treats the home as security, creating a mortgage lien on the property. If the buyer fails to make his payments, the lender can exercise its lien and foreclose on the home. In contrast, unsecured debt, such as credit cards, is not backed by collateral so there's nothing to take away from the debtor when he fails to keep up with his payments. Because secured lenders can seize the collateral used to secure a loan, such as the home, Chapter 13 makes it possible for debtors to pay back any arrearage or past due balance over the course of three to five years rather than lose the property. Debtors also have the option of giving up the property.

Which Liens Can Be Stripped

Sometimes Florida debtors secure second and third loans on a single property. A common example is when a debtor obtains a loan in which her home is used as collateral, such as a home equity loan or equity line of credit, creating a second or third mortgage on the property. As with the original mortgage loan, any second or third mortgage creates a lien on the home. These are commonly referred to as junior liens. However, if the value of the home decreases substantially, dipping below the balance owed on the first mortgage loan, there is no longer any equity to secure the junior liens. If this happens and the debtor files for Chapter 13 bankruptcy, she can have the junior liens reclassified from secured to unsecured debt. This effectively removes the second and third liens from the property, which means the lender loses the right to seize the property. However, this only happens if the debtor successfully completes her Chapter 13 repayment plan.

Liens Stripped After Discharge

If the debtor successfully completes his Chapter 13 repayment plan resulting in a discharge, creditors whose liens have become unsecured are required to remove them from the property provided the senior lien exceeds the property's fair market value. If the debtor pays off any secured debts through the repayment plan, the creditors of these debts must also release their liens upon the bankruptcy discharge. If a creditor fails to strip its lien, a phone call to the creditor reminding him to do so is often all that's necessary to have the lien removed. If the creditor still doesn't comply, the debtor must then file a motion with the bankruptcy court and ask the judge to officially remove the lien. Lien stripping is a complex area of bankruptcy law. Therefore, debtors interested in this option may wish to contact a local bankruptcy attorney for guidance.

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Can You Refuse to Reaffirm a Second Mortgage During Bankruptcy?

References

Related articles

Motion to Avoid a Lien in Bankruptcy

A successful bankruptcy can be like a magic wand, eliminating your responsibility for paying debts. The wand can only affect debts, however, not liens created by them – they're two separate things. If you owe someone money and he goes to court and gets a judgment against you, and if he then uses the judgment to create a lien against your property, your bankruptcy discharge removes only your liability for the underlying debt. Removing the lien – called "avoiding" it in bankruptcy terms – involves taking an extra step.

What Is Dischargeable in Bankruptcy?

Most debts are dischargeable, or wiped out, in bankruptcy, from credit cards and personal loans to medical bills and unpaid rent. However, some debts cannot be discharged based on when they were incurred or the type of debt they are. For example, student loans are typically not discharged in a bankruptcy proceeding, along with debts obtained by fraud.

How Long After for Filing Bankruptcy Can You Purchase Another Home?

Bankruptcy can hit a filer's credit score, often causing banks and other lenders to avoid lending money to someone who has been through bankruptcy. But it's not impossible to qualify for a mortgage again after filing bankruptcy. In fact, many filers can qualify for a mortgage again in one to four years after they receive their bankruptcy discharge.

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