A lien is a right that lets an individual or an organization take possession of a property. Lien plays a different role in instances of loan payment and many more. However, many individuals are still asking about what is lien in terms of bankruptcy. The following information will teach you more about bankruptcy and liens.


What is Lien in General?

A lien is kept by a creditor or bank as security when clients filed for a loan. Presented as generally the document attached to an asset, a lien indicates that the investor owes a creditor money, making the latter the lien holder. The lien will only be removed from the hands of the creditor once the loan is paid. A lien can be attached on houses, cars and other important assets.

How is a Lien Related to Bankruptcy?

A lien is related to bankruptcy being an important component in getting a loan. An investor may have severe financial problem that declaring bankruptcy is his only option. Since the person has already declared bankruptcy, what will happen to the lien on the property? An individual going for a loan should know the facts behind a lien and what happens to it in time of bankruptcy.

How Lien is Stripped?

Stripping of lien is a part of the Chapter 13 bankruptcy. It means that upon declaring bankruptcy, all the subsequent junior lens will be eliminated. This is in cases when you have several loans or mortgage to your property.

There are several rule when it comes to lien payment and the process is similar when it comes to bankruptcy. When your home is foreclosed, the earliest lien holder will get the payment first from the sale then the next lien holders will get their payment. Through bankruptcy, the later liens will be eliminated.

However, it’s important for the investor to know that not every lien may be eliminated. Stripping liens may only be applied on wholly unsecured liens. Wholly unsecured refers to the subsequent liens that cannot be paid during foreclosure. This is in the case when the property’s fair market amount is equal or lower than your first mortgage. It means that the money generated from sale is insufficient to cover all loans. Those that can’t be paid through the sale can be eliminated by taking advantage of the rule on bankruptcy.

What Happens after Lien Stripping?

If your subsequent liens met this requirement, it can be eliminated and treated like other unsecured debts like unpaid credit card debts after bankruptcy. These lien holders may receive a small amount of money or none at all after paying the first loan. Once processing is complete, clients will have these loans wiped out and the lenders will be asked to remove the lien on the asset.

A lien is an important part of getting a loan until the payment process. In terms of bankruptcy, a lien can be stripped given that they met the eligibility stated above. Consult a financial expert to know if it’s possible to eliminate your other liens and make your financial problem easier to manage.