Fourth Circuit Allows Lien Stripping in Chapter 20 Bankruptcy

In May 2013, the U.S. Court of Appeals for the Fourth Circuit rules that debtors can strip off wholly unsecured junior liens in a Chapter 13 bankruptcy that follows close on the heels of a Chapter 7 bankruptcy (often referred to as Chapter 20 bankruptcy).(In re Davis, No. 12-1184 (May 10, 2013).)

In May 2013, the U.S. Court of Appeals for the Fourth Circuit rules that debtors can strip off wholly unsecured junior liens in a Chapter 13 bankruptcy that follows close on the heels of a Chapter 7 bankruptcy (often referred to as Chapter 20 bankruptcy).(In re Davis, No. 12-1184 (May 10, 2013).)

This means that if you have a second or third mortgage, junior lien, or HELOC that is not covered by the equity in your home (meaning, the balance on your first mortgage is greater than the value of your home), you can get rid of it in Chapter 20 bankruptcy if you live in the Fourth Circuit -- Maryland, North Carolina, South, Carolina, Virginia, and West Virginia.

For details on how this works, see our blog post in Nolo's Bankruptcy, Debt & Foreclosure blog.