Can You Strip a Lien in Chapter 13 Bankruptcy?

Mounting payments on a home can feel like a weight that will not lift. When property values dip, that weight often includes second or third mortgages that no longer match the home’s worth.

At Yusufov Law Firm PLLC, we help individuals and business owners in Mesa, Phoenix, and Tucson explore relief that keeps roofs overhead and businesses alive. This article explains how lien stripping works in a Chapter 13 case, who qualifies, and how the process unfolds in Arizona courts.

Lien Stripping in Chapter 13

Before diving into the details, it’s helpful to understand what “lien stripping” means. In a Chapter 13 case, you may ask the court to erase a junior mortgage from your home if that mortgage is completely unsecured by the property’s value. The debt remains in the case, but it changes from “secured” to “unsecured,” placing it in the same pool as credit cards and medical bills.

This relief applies only when your first mortgage balance meets or exceeds the home’s fair market value. Because that first mortgage soaks up all available value, no equity backs later liens. Unlike Chapter 7, where lien stripping is not allowed, Chapter 13 gives you the chance to keep the house while paying a fraction of the now-unsecured balance through a court-approved plan.

How Lien Stripping Works

In simple terms, stripping a lien changes the lender’s status. The lender (also called “creditor”) loses the right to foreclose and must accept repayment alongside other unsecured creditors. Let’s break down the steps and standards.

Eligibility for Lien Stripping

Courts use the “wholly unsecured” rule. If senior mortgages already exceed the home’s value, every dollar of any junior lien is unsecured and can be stripped.

• Example: Your house in Tucson is worth $300,000. The first mortgage is $400,000. A $50,000 second mortgage is entirely unsecured, so it may be stripped.
• If the first mortgage were $280,000 instead, $20,000 of equity would secure part of the second mortgage, blocking stripping.

Disputes over value sometimes arise. A lender may challenge your appraisal, prompting the judge to hold a short hearing where both sides present evidence.

The Lien Stripping Process in Arizona

There are two lien stripping processes that can be used in Arizona.  After filing your Chapter 13 case, your attorney can submit a motion to strip the lien, backed by:

1. An appraisal or broker’s price opinion that shows the fair market value, and
2. Proof of all mortgage balances on the filing date.

The court serves the motion on the affected lender. If no timely objection arrives, the judge signs an order reclassifying the debt. The lender’s claim then shifts to the unsecured section of your repayment plan.

An alternative approach, and the one more commonly used in Arizona, is to strip the lien by including appropriate language in the Chapter 13 plan.  If no objection is filed by the creditor, and the plan get approved, the lender’s is then treated as unsecured.

Consequences of Completing or Failing the Chapter 13 Plan

Success matters. If you finish the Chapter 13 bankruptcy, the lien will be eliminated permanently. If the case is dismissed early, or converted to Chapter 7, the lien springs back in full force, as if stripping never happened.

Liens Affected by Chapter 13 Bankruptcy

Chapter 13 reshapes more than junior mortgages. Several types of liens can be modified or removed, each with its own rules.

Types of Liens

Below are common liens and how they fare in a Chapter 13 case:

• Judgment (judicial) liens: A creditor that sued you may have recorded a judgment against your home. If that lien interferes with your Arizona homestead exemption, you may file a motion to avoid it.
• Non-purchase money security interest liens: These cover household goods pledged for old personal loans. They can be avoided if they impair an exemption.
• Junior mortgages: Second or later mortgages can be stripped when wholly unsecured by the property’s value.
• Secured debts subject to cramdown: Certain loans on cars or rental property can be reduced to the collateral’s value, then the excess becomes unsecured.

Arizona Homestead Exemption and Lien Avoidance

Arizona grants homeowners up to $425,200 in equity protection through the homestead exemption, as outlined in . This amount is adjusted annually.  When a judgment lien threatens that equity, a debtor may ask the bankruptcy court to avoid the lien to the extent it eats into the protected amount. Lien avoidance and lien stripping often work together, shielding both present equity and future appreciation.

Lien Stripping vs. Lien Avoidance vs. Cramdown

Because these terms sound alike, the table below compares them side by side.

Comparison of Common Lien Modification Tools in Chapter 13

Tool	What It Does	Typical Targets	When Available
Lien Stripping	Turns a fully unsecured junior lien into unsecured debt	Second or third mortgages on an upside-down home	Chapter 13 and Chapter 11 or 12
Lien Avoidance	Removes a lien that harms an allowed exemption	Judgment liens, certain non-purchase security interests	Chapter 7, Chapter 13, and Chapter 11 or 12
Cramdown	Reduces the secured portion to the collateral value, the rest becomes unsecured	Car loans older than 910 days, rental property mortgages	Chapter 13 Chapter 11 or 12

 

Remember, stripping erases the lien entirely after completion of the bankruptcy, while cramdown leaves a smaller secured note that you must continue to pay through the plan.

Limitations on Lien Modification

Federal law sets boundaries, and Arizona courts enforce them closely.

• Your primary mortgage on your principal residence cannot be crammed down or otherwise modified, except through regular payments or a loan workout outside bankruptcy.
• A car loan made within the last 910 days stays secured for its full balance, and personal property loans within one year keep their secured status.
• Liens that arise after filing or that survive due to special statutes continue despite bankruptcy.

Considering Chapter 13 Bankruptcy in Arizona? Contact Us Today

At Yusufov Law Firm, we help clients across Tucson, Mesa, and Phoenix navigate Chapter 13 bankruptcy with a focus on protecting assets and long-term financial stability. If you’re dealing with mortgage balances that exceed your home’s value or judgment liens that threaten your equity, we’re here to help. Call us in Tucson at (520) 745-4429 or in Mesa/Phoenix at (480) 788-0098 or visit our Contact Us page to schedule a consultation. We’ll review your options, prepare a tailored plan, and advocate for the relief you need. The sooner you act, the more options you may have for a fresh financial start.