Effect of lienstripping on co-obligor

[blanka5000]

What is the effect of stripping a second mortgage off of a home under Chapter 13 on a co-signer on the loan who has not filed bankruptcy? Is the second mortgage still considered a secured debt with regarded to the non-bankrupt co-signer?

[justbroke]

What is the effect of stripping a second mortgage off of a home under Chapter 13 on a co-signer on the loan who has not filed bankruptcy? Is the second mortgage still considered a secured debt with regarded to the non-bankrupt co-signer?

The underlying debt is still owed, actually.

So let's put this in perspective. When you lien-strip, you are basically removing (only) the lien which secures the underlying loan. When this happens, the claim is no longer a secured claim, and gets transformed into a totally unsecured claim.

The creditor/lender now has an unsecured claim that then becomes part of your general unsecured pool of claims. They will get the pro rata disbursement of payments through your Plan.

For arguments sake, let's say that the payment to unsecured creditors is 10%. Let's say that the allowed "unsecured claim" that resulted from the lien-strip is $100,000. The lender/creditor would get $10,000 over the life of the plan. That leaves a $90,000 shortfall. The creditor/lender, once you are discharged, can not go after you for that $90K because they are barred by the discharge injunction.

However, you want to know what happens to your co-debtor. First, there's a co-debtor stay. The co-debtor is protected during this same time period as you are. This could be 36-60 months. A lender/creditor could seek to get Relief from the Co-Debtor stay so as to pursue the co-debtor. Personally, I've only seen this in respect to cars... because the lender wants to repossess the car.

Anyhow, the Bank could file the Relief from Co-Debtor Stay and seek to recover the $90K from the co-debtor.

That's my read and understanding.