One of the goals of a Chapter 13 bankruptcy is to get you back on track and current with your mortgage, vehicle payment, and other loans you may have. Some of the options your loan modification lawyer may recommend in your bankruptcy include the following:
Lien stripping – When a homeowner has a second or third mortgage on their home or they have a home equity line of credit, they may have the legal option of eliminating them – or “stripping” them – in their bankruptcy petition. This option is usually only available if the actual value of the home is lower than the amount that is owed, often referred to as being “underwater.”
Cramdown – The balance of a vehicle and other types of loans (other than mortgages) are often more than the actual value of the property. In these situations, the petitioner may be able to lower the amount owed to the actual value of the property. For example, if a petitioner owes $8,000 on their vehicle loan but the resale value of the vehicle is only $4,000, the loan may be reduced to $4,000 by the court.