Stripping Liens on TBE Property in Chapter 13

When deciding whether to file a Chapter 13 Bankruptcy together with your spouse, there is a new interesting factor to consider. In a recent case, Judge Cristol denied a Chapter 13 Debtor the ability to strip a lien off of his home. Lien stripping is a great benefit of Chapter 13 as it allows an underwater property owner to knock off a second mortgage provided it is fully unsecured.

However, debtors will now have to take into account how their home is owned when considering lien stripping. In this case, the Chapter 13 was filed individually or without the Debtor’s spouse. The home was owned as tenants by the entirety (TBE) by the Debtor and his wife. TBE means neither spouse owns the home individually, but each spouse owns the whole or entirety.

The Judge determined that individual debtors are prohibited from stripping down or off a mortgage unless the other spouse is also a joint debtor in the Chapter 13 case. Unfortunately, this is a burden of TBE ownership. When property is owned TBE, any type of ownership change requires joint action by both spouses. On the up side, Chapter 13 allows a debtor to voluntarily dismiss their case at any time, unlike Chapter 7. So if the Chapter 13 was filed individually and you want to strip a lien, then you may voluntarily dismiss your case and refile with your spouse included.

If you have questions about foreclosure, loan modification, bankruptcy, or other alternatives, please feel free to call my office at 954-484-9987, send an e-mail to emil@fleysherlaw.com, or complete the contact form below.