Lien Stripping Question In Chapter 13 Bankruptcy Proceedings Comes To A Head In Minnesota; Advocates Seek Case Law Consistency With Rest Of Country

The Minnesota Lawyer reports:

• [Minnesota]’s bankruptcy attorneys are hoping that a case before the 8th Circuit Court of Appeals will allow debtors to get out from under second mortgages in Chapter 13 bankruptcies and bring Minnesota in line with the rest of the country when it comes to a practice called lien stripping.

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• “In the 1990s into the 2000s bankruptcy courts said you couldn’t do lien stripping on unsecured second mortgages, but over the past few years every other circuit except for the 8th started to change its mind and say you can do lien stripping if there is no value on the home,” [Bloomington bankruptcy attorney Craig Andresen] said. “As real estate values have plummeted now you have lots of totally unsecured second mortgages, and Minnesota is still saying that you can’t strip those liens. I felt that if every other court was allowing it, why not Minnesota? It’s time to get lien stripping approved by an appeals court.”

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• Jasmine Keller, the Chapter 13 bankruptcy trustee for the District of Minnesota, agrees that second and third mortgages should be stripped because homeowners need help. She said some families have $200,000 mortgages on homes now worth $125,000. For them, lien stripping is no different than when corporations file for bankruptcy protection.

For more, see Lien stripping could be in state’s future (Case could allow practice now barred in bankruptcy).