Understanding Chapter 13 lien stripping

If your Louisiana job pays you a decent salary or wage, but you still find yourself swimming in debt to the extent that you fear your home will go into foreclosure, Chapter 13 bankruptcy may be the answer to your financial problems. Chapter 13 accounts for most Louisiana personal bankruptcy filings because debtors receive both immediate and long-term debt relief less harshly than what Chapter 7 provides.

For instance, if you have two mortgages on your home, Chapter 13 will not only stop foreclosure proceedings in their tracks, but also often completely disposes of your second mortgage by stripping whatever lien your second mortgage holder has or attempts to put on your home.

Debt repayment plan

Unlike a Chapter 7 discharge proceeding, Chapter 13 is a reorganization proceeding that allows you to renegotiate your debts with your respective creditors, thereby often accomplishing better loan terms or even loan balance reductions. During this renegotiation period, none of your creditors, including your mortgage lenders, can harass you or take any action to collect their respective debts.

The court divides your creditors into two categories: secured and unsecured. Your secured creditors represent the ones who hold security on your debts to them. Your unsecured creditors, however, hold no security on your debts. Your first mortgage lender falls into the first category, while your second mortgage lender falls into the second. You renegotiate your secured debts individually with those creditors and renegotiate your unsecured debts with those creditors as a group.

Once your renegotiation period ends, you then devise a repayment plan that the court must approve before it goes into effect. This plan does not need to include payments to your unsecured creditors, including your second mortgage holder.

Once approved, you then make fixed monthly payments to your creditors mentioned in your plan for three years, or possibly even five years, based on your ability to pay. At the end of your repayment period, and your Chapter 13 bankruptcy, the court discharges your remaining unsecured debts, including your second mortgage debt, and can strip whatever lien your second mortgage lender may have placed on your home.