What is a lien strip?

A lien is the right to take or sell an asset that secures payment on a debt. Most consumers have a number of liens against their assets: houses, cars, recreational equipment, artwork, or business loans, just to name a few. A secured lien is a debt that is tied to a specific asset such as your home or car. Lien strip – or stripping a lien – means to have a lien removed from title making the debt completely unsecured, and it typically sought for liens against homes or other property.

In Arizona, lien strips can only be sought with a Chapter 11 bankruptcy or Chapter 13 bankruptcy filings. Lien stripping is a complicated procedure with many variables and it is important to consult with a knowledgeable bankruptcy attorney. For homes in the Phoenix and Scottsdale, Arizona, a second mortgage or home equity line of credit (HELOC) are not uncommon, and both situations would most likely benefit from a lien strip.

Lien stripping removes the lien from being secured by the asset and makes it a lien that is unsecured. This is important because during bankruptcy payment plans, secured liens are paid first and unsecured liens are paid later. Often unsecured liens are not paid in full or are paid at zero percent interest. So having a lien stripped and reclassified as unsecured can amount to a huge difference in how much repayment must be made under the repayment plan.

A lien strip may a helpful part of the bankruptcy process if executed correctly. An experienced bankruptcy lawyer will help to determine which bankruptcy chapter is right for you and whether or not a lien strip could be part of your bankruptcy filing. If a lien can be stripped, it can make a big difference in the amount of your bankruptcy plan payment.