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Effectively of us, it is time for half two of methods to maximize your chapter exemptions: lien stripping. Final week we mentioned lien avoidance as a technique to take away the secured standing of sure lien that impair your chapter exemptions.
In the present day I wish to say a number of phrases about lien stripping, which refers back to the stripping of the secured standing of a lien that isn’t adequately secured by fairness in an asset.
Lien stripping, additionally known as a lien cramdown, includes the elimination of a secured portion of a lien in circumstances the place the current market worth of the asset will not be ample to safe your entire lien. That’s, a lien is simply a secured declare to the extent that the asset to which it attaches has worth. In conditions the place the lien exceeds the worth of the asset, that portion of the lien exceeding asset worth is unsecured.
To make clear let’s contemplate the next scenario relating to car loans, which is a typical software of lien stripping. Faux you at the moment have a remaining steadiness of $20,000 in your automotive mortgage. In response to Kelley Blue book, the present market worth of your automotive is simply $13,000.
Lien stripping could also be utilized throughout your chapter proceedings such that the secured portion of your automotive mortgage is lowered to $13,000 and the remaining $7,000 of your mortgage is stripped of its secured standing, to unsecured.
Lien stripping is a useful software obtainable in each chapter 13 and chapter 11 chapter. Sadly, lien stripping doesn’t apply when submitting chapter 7 chapter.
In contrast to the avoidance of particular liens that impair exemptions, most liens will be stripped in the event that they meet these necessities. The one huge exception to that is the first house mortgage.
Presently, chapter law states that voluntary liens secured solely by the residence of the debtor can’t be stripped in chapter 11 or chapter 13 chapter. The intense facet is that, in Arizona Chapter Court docket, second mortgages which might be wholly unsecured could also be stripped of their secured standing. Remember that these particulars might change as congress critiques and revises chapter law.
One other vital level to make is that the current modifications to chapter law seem to restrict lien stripping of car loans to these autos bought outdoors of two ½ years. That’s, the modification says that §506 doesn’t apply to these autos bought throughout the final 910 days. Thus lien stripping might not show you how to get better that enormous chunk of worth your new automotive loses while you drive it off the lot.
To sum it up, each lien stripping and lien avoidance will be highly effective instruments that will prevent a big sum of cash when submitting for chapter. These are fairly complicated subjects, and thus finest dealt with by a professional chapter legal professional.
As at all times, I’m a licensed chapter lawyer obtainable without cost consultations at my Phoenix workplace should you want any questions answered relating to your Arizona Chapter.
