Some of our readers may know that there are two primary forms of bankruptcy for individual debtors: Chapter 7 and Chapter 13. Both forms of bankruptcy have their advantages and disadvantages, and it is important for debtors to work with an experienced attorney, first to determine whether or not bankruptcy is a good solution for their situation, and second, which form of bankruptcy they should pursue.
Dealing with mortgage-related debt is an important goal for many debtors who enter the bankruptcy process. In Chapter 13 bankruptcy, one of the benefits for struggling homeowners is that they are able to do something known as “lien-stripping.” This refers to the ability to eliminate debts associated with second or third mortgages, provided the amount of equity in the home doesn’t secure any of the debt connected to those mortgages. This is done by reclassifying those debts as unsecured.