Condo lien stripping in Chapter 13 bankruptcy
It may be possible to strip a lien on a home or condo in a Chapter 13 bankruptcy.
A bankruptcy filing is, for many, their best chance at a fresh financial start. This is particularly true when a person has unsecured debts, which are easier to discharge in a bankruptcy proceeding. One example of an unsecured debt is the “underwater” value of a home, rental property or commercial property. If, for example, a home was purchased at a price of $500,000 but is now only worth $300,000, it might be possible for liens, mortgages and other encumbrances on the property in excess of its present value to be stripped away.
The Keise ruling
A recent ruling by the United States Bankruptcy Court for the District of New Jersey, handled by our firm, provides guidance about the circumstances in which a consensual or statutorily created lien can be stripped away during a Chapter 13 bankruptcy proceeding. Specifically, the bankruptcy case involving the Keises hinged on whether a lien for unpaid assessments filed by a homeowner’s association could be modified and stripped off in a Chapter 13.
Generally, there are “antimodification” provisions that prevent liens held only by a consensual secured interest in real property from being modified once a Chapter 13 plan has been filed. The Keise court found that, in the instance of a homeowner’s association having a lien for assessments and unpaid dues incurred both prior to and after the filing of a Chapter 13 plan, the lien was actually not solely consensual in nature, thus it was not subject to the antimodification dictates set forth in 11 U.S.C. § 1322(b)(2).
Even though it does turn on somewhat unique facts (hinging on both the interpretation of the state’s condominium law and the homeowner’s association bylaws and regulations that the plaintiffs signed upon purchasing their home), this case could prove to be precedential for similarly situated, financially struggling homeowners around the state. It may be possible, with the assistance of an experienced bankruptcy attorney, to successfully argue that similar liens, second mortgages, assessments and other encumbrances should be stripped away and crammed down in a Chapter 13 proceeding.
Only time will tell if the Keise case has any long-reaching benefit to other bankruptcy filers (beyond the obvious benefit to the Keises themselves). If you are facing unmanageable debt, bankruptcy might be right for you. Contact the Neptune or Toms River law offices of Oliver & Legg to learn more about if bankruptcy could be the solution to your financial problems.