Los Angeles Bankruptcy Lawyers Blog

Most of us will remember the effort the Obama administration made in March and April 2009 to pass legislation permitting Bankruptcy Judges to modify or "cramdown" a mortgage to the present value of the homeowner's real estate. The legislation passed the House but was defeated in the Senate. Now, Congressman Barney Frank wants to give "cramdown legislation" another shot. The legislation would benefit homeowners whose homes are "underwater," i.e., of lesser value than the mortgage on the home, by cramming down the mortgage to the present value.

Another term getting a lot of press and a similar effect is "lienstripping" in bankruptcy. "Lienstripping" is bankruptcy jargon referring to a debtor's ability to reduce an undersecured creditor's claim to the present value of its collateral through claim valuation., Lienstripping has the effect of dividing an undersecured creditor's claim into secured and unsecured portions: The unsecured portion of the lien is "stripped" from the collateral and the deficiency between the total debt owed and the collateral's present value becomes an unsecured claim. The lien on the collateral remains only in the amount of the "secured" claim. Unfortunately, this process is limited to the reorganization cases, i.e., Chapter 11 (debtors whose debt amounts to over $1,010,050) and Chapter 13 cases and cannot be applied to the first mortgage of a debtor's principal residence (cramdown legislation would permit this extension) on the first mortgage. However, lienstripping can apply to a "junior lien" (second or third mortgage) on a principal residence. For example, Creditor 1 has a $200,000 claim on the principal resident and Creditor 2 has a $100,000 claim on the same home for a total of $300,000 and the home is only worth $160,000. By bifurcating the secured and unsecured claims, the Creditor 2's claim becomes unsecured and can be eliminated from the debtor's repayment plan.

Lienstripping applies to real estate, automobiles, boats, airplanes and other items. With exceptions and limitations, this process becomes quite complex and you should have bankruptcy attorneys such as Frazee/Laron handle these procedures for you.

--RoseAnn Frazee--
Los Angeles Bankruptcy Attorney

If you are a Los Angeles resident contemplating Bankruptcy but are having feelings of shame or guilt, rethink those feelings as they are likely misplaced and you are being too hard on yourself. A recent article in USA Today demonstrated just how obvious Bankruptcy filings have directly followed Foreclosures linked to the Housing Crisis. Nevada now has the most filings in the United States, and the fact that the state is home to the highest foreclosure rates is no accident. The days of Bankruptcy being reserved for the irresponsible are officially over. Fortunately, an individual has some choices, and can file a Chapter 7, Chapter 13, and even a Chapter 11 to keep assets and get a new lease on life.

If you are contemplating Bankruptcy because your finances are out of control, it is likely because of a job loss or cut in hours, a serious medical problem or illness that has happened to someone who is no longer employed with health insurance, or a person who was taken by an exotic loan that ballooned out of control when the teaser period ended and can't sell the house for even half of what they bought it for.

Remember, a Bankruptcy can actually save your home if you can file a Chapter 13 Bankruptcy, or you can still keep your home under a Chapter 7 if your equity has fallen dramatically (which includes just about everyone in Los Angeles) as long as you keep up your payments. However, this choice is a serious one that needs professional attention. As a Los Angeles Bankruptcy Attorney, I can evaluate your particular situation and develop the smartest way to handle a difficult financial crisis. Take action, get the help you need, and look forward to a new beginning where you don't have to wallow in the financial misery that has swallowed literally millions of Americans.

Kirk Laron
Los Angeles Bankruptcy Attorney