Second Mortgage "Lien Stripping"

One of the most significant developments in the current economic crisis in the world of bankruptcy law is the use of "lien stripping" to remove second and sometimes third mortgage from primary residences. The concept was, in the recent past almost unheard of in Florida where it seemed that the value of property would never go down. The reality has set in and the value of nearly all real property has gone down and in particular residential properties, essentially our homes.

In Chapter 13 (Chapter 7 does not allow this procedure), a debtor can file a Motion to Determine the Secured Status of his or her residence, and if the value of the residence is less than the amount that is owed on the first mortgage (for example) then the second mortgage is essentially an unsecured debt and can be "stripped." The second mortgage would then be paid at the same rate as the other general unsecured creditors (as provided for in the Chapter 13 Plan), sometimes as low as 0%.