Chapter 13 Bankruptcy: Lien Stripping Explained

In this installment of The Professor’s Audio Briefing, I explore the legal strategies available to reduce your mortgage with bankruptcy and lien stripping by filing for Chapter 13 bankruptcy.

I address the persistent myths surrounding debtor-creditor law since many homeowners mistakenly view bankruptcy as a “one-size-fits-all” solution, but the reality is that the ability to restructure or eliminate mortgage debt depends entirely on a second mortgage, not a first mortgage, and the value of the property.

While the “automatic stay” provides a powerful shield, the critical distinction between a dischargeable debt and surviving a secured lien, like a second mortgage, is often where filers encounter trouble. Understanding these differences is essential; if not, you can jeopardize your home if the incorrect Chapter is filed or if junior liens are not properly addressed during the bankruptcy process.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Updated on January 14, 2026.

Listen: The Professor’s Audio Briefing.

Secured Debts Survive Bankruptcy

A common misconception among filers is that a bankruptcy discharge automatically clears a mortgage. It is critical to understand that while a discharge may eliminate unsecured debt, it will not include a lien like a mortgage if you keep the property. I believe the confusion is that debtors will hear someone say they filed for bankruptcy and aren’t responsible for the mortgage. However, that is because they surrendered the property. At that point, the mortgage becomes unsecured debt.

• The Dangers of Zombie Mortgages: Are You at Risk?

This is evident with the common term known as the “Zombie Mortgage“ phenomenon. These are second mortgages or Home Equity Lines of Credit (HELOCs) that homeowners believe were discharged in Chapter 7 bankruptcy years ago, only to have a debt buyer resurface a decade later to initiate foreclosure.

Secured vs. Unsecured Debt in the Bankruptcy Code

To understand how to protect your home, we must categorize the debt:

Chapter 7 (Liquidation): Primarily targets unsecured debt (credit cards, medical bills). While it stops a foreclosure temporarily via the Automatic Stay, it cannot “force” a cure on a delinquent mortgage. To learn more about “curing the mortgage,” read this recent article.

Chapter 13 (Reorganization): Chapter 13 bankruptcy allows you to cure arrears over a three-to-five-year plan. That option is not available with Chapter 7.

What is Lien Stripping?

Lien stripping is a powerful tool exclusive to Chapter 13 reorganization, but it only applies in specific cases.

In a Chapter 13 filing, we can “strip” a second or third mortgage and reclassify it as unsecured debt, meaning it gets paid cents on the dollar and is discharged at the end of the plan. However, this is only possible if the balance of your second mortgage exceeds the current fair market value of your home.

For example, say your home is worth $200,000. Any amount by the second mortgage exceeding the home’s value can be stripped. So it’s possible to strip all or part of the second mortgage.

The Criteria for Lien Stripping:

1. Valuation: Your home must be “underwater,” meaning it is worth less than what is owed.
2. Chapter 13 Completion: The lien is only officially removed upon the successful completion of your 3-to-5-year payment plan and the issuance of your discharge.

In the video below, I break down the math behind lien stripping and explain the procedural steps required to challenge a junior lienholder in court.

Questions or Case-Specific Comments? Please feel free to post your questions in the comment section of the YouTube video, and I will do my best to provide further clarity.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Initially updated on January 30, 2025.