Second Mortgages and Bankruptcy in St. Louis

If you have a second mortgage or HELOC and are underwater, Chapter 13 bankruptcy may offer relief through lien stripping.

What Is Lien Stripping?

Lien stripping is a Chapter 13 process that can remove a second mortgage or HELOC from your home entirely. Under 11 U.S.C. section 506(a), if your home's value is less than or equal to the first mortgage balance, the second mortgage is considered wholly unsecured and can be "stripped off."

Home's fair market value is determined (usually by appraisal)
If value ≤ first mortgage balance, second mortgage is entirely unsecured
Second mortgage treated as general unsecured debt in your Chapter 13 plan
Paid at the same percentage as other unsecured debts
Upon plan completion, the second mortgage lien is removed

Chapter 13 vs. Chapter 7

Chapter 13 -- Lien Stripping Available

Can strip wholly unsecured second mortgages
You keep your home while making plan payments
Lien removed upon plan completion
Must complete the full 3-5 year plan

Chapter 7 -- No Lien Stripping

Cannot strip second mortgage liens (per Dewsnup v. Timm)
Lien survives even if personal debt discharged
Surrendering the home may discharge deficiency
Keeping the home requires paying both mortgages

Eligibility Requirements

Home value must be ≤ first mortgage balance -- if even $1 of equity exists above the first mortgage, stripping is not available
Must file Chapter 13 (not available in Chapter 7)
Must complete all plan payments -- lien removal is contingent on plan completion

Missouri Considerations

Homestead exemption: $15,000. Affects minimum payment to unsecured creditors.
Foreclosure: Missouri uses non-judicial, typically completing in about 60 days.
Court: Lien stripping motions filed in the Eastern District of Missouri at 111 S. 10th St., St. Louis, MO 63102.

Frequently Asked Questions

What is lien stripping?

A Chapter 13 process removing a second mortgage when home value is less than the first mortgage balance. The second mortgage becomes unsecured debt in the plan.

Can I strip my second mortgage in Chapter 7?

No. Per Dewsnup v. Timm, lien stripping is only available in Chapter 13 (or Chapter 11).

What if my home is worth slightly more than my first mortgage?

If any equity exists above the first mortgage -- even $1 -- stripping is not available.

When is the lien actually removed?

Only upon successful completion of all plan payments (3-5 years). If the case is dismissed, the lien survives.

How is home value determined?

Usually by appraisal or broker's price opinion. The court must approve the valuation.