Lien Stripping in Chapter 13: Can You Remove a Second Mortgage in New York?
If you’re struggling to keep up with multiple mortgages on your home, Chapter 13 bankruptcy in New York might offer a powerful solution: lien stripping. This legal tool allows qualified debtors to remove a second mortgage—or any junior lien—from their property if it’s completely underwater.
Here’s how lien stripping works in New York and when you can use it to your advantage.
🔍 What Is Lien Stripping?
Lien stripping is a process available in Chapter 13 bankruptcy where a second mortgage (or third, or HELOC) can be treated as an unsecured debt and ultimately removed from your property—if it meets one key requirement:
The value of your home must be less than the balance of your first mortgage.
⚖️ The Legal Basis: 11 U.S.C. § 506
Under 11 U.S.C. § 506(a), a claim is secured only to the extent that there is value in the collateral. If your home is worth less than your first mortgage, then the second mortgage is considered wholly unsecured, and it can be stripped through your Chapter 13 plan.
In these cases, the stripped mortgage is:
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Reclassified as an unsecured debt (like a credit card)
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Paid only a small percentage (if anything) in the plan
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Discharged entirely at the end of your case
📚 In In re Hassan (2015), the court allowed a debtor to strip a second mortgage after finding the value of the property was less than what was owed on the first mortgage—even though the mortgage lender tried to argue otherwise.
🏛 How New York Courts Handle Lien Stripping
Courts in the Eastern and Southern Districts of New York follow a structured process when it comes to lien stripping. You must:
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File a motion to avoid the lien under Local Rule E.D.N.Y. LBR 9013-1.
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Provide an appraisal or other evidence showing your home’s value.
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Demonstrate that your first mortgage exceeds the property’s value.
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Wait for court approval, usually after notice and an opportunity for the lender to object.
Even if the second mortgage holder doesn’t file a proof of claim, courts have still allowed lien stripping, as noted in In re Peiris.
❗ Important Limits
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Only applies in Chapter 13 — Lien stripping is not allowed in Chapter 7 in New York.
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The second mortgage must be completely unsecured — If your home is worth even $1 more than your first mortgage, the second mortgage cannot be stripped.
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You must complete your Chapter 13 plan — The lien is not officially removed until you finish your payments and get your discharge.
✅ Real-Life Example
Let’s say:
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Your home is worth $400,000
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You owe $405,000 on your first mortgage
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You owe $75,000 on a second mortgage
Because the first mortgage exceeds the home’s value, the second mortgage is entirely unsecured and can be stripped in Chapter 13.
💡 Why This Matters
For homeowners in financial distress, lien stripping can:
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Lower your monthly obligations
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Help you keep your home
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Significantly reduce the total debt you owe
It’s especially valuable if your home’s value dropped after a refinance or home equity line of credit (HELOC).
📞 Get Help from an Experienced New York Bankruptcy Attorney
At the Law Office of William Waldner, we’ve helped hundreds of New Yorkers use Chapter 13 to stop foreclosure, strip second mortgages, and get a true financial fresh start.
📍 Serving Manhattan, the Bronx, Queens, Brooklyn, and Westchester
📅 Book your consultation today at www.midtownbankruptcy.com
