Lien stripping can be a very useful tool for small business owners who are filing bankruptcy and want to protect an asset that falls under exemption but is not completely exempt.
Lien stripping can be a very useful tool to small business owners. According to the bankruptcy code, a lien is secured only to amount of the worth of the property when bankruptcy is filed. Therefore, if there is a difference between the amount of the lien and the value of the property, that excess is stripped away. This is a helpful tool for properties that are not protected under the property exemptions. Thus if the lien can not be eliminated completely, you will at least be able to save money by eliminating part of the lien over the value of the property.
For example, if you have a $15,000 lien on a car but when you file for bankruptcy the worth of the car is only $12,000, the excess $3,000 will be stripped away and you will save $3,000.