Most people know that naming a beneficiary on a retirement account, life insurance policy, or bank account can help assets pass directly to loved ones, without a will, without a court, and without delay. What few people realize is how easy it is to undo that protection through simple, avoidable errors. A flawed or outdated beneficiary designation can send assets straight into probate anyway.
Accounts with a named beneficiary, including 401(k)s, IRAs, life insurance policies, and payable-on-death (POD) bank accounts, transfer by contract, not by will. That means they bypass probate entirely when the designation is valid and current.
Probate is the court-supervised process for distributing a deceased person’s estate. It’s public, often slow, and adds costs that reduce what your heirs receive. A properly completed beneficiary form sidesteps all of that. But the operative word is “properly.”
Several common errors send designated assets into probate despite your best intentions.
Accounts without a named beneficiary default to the estate and go through probate. This happens more often than it should, especially with older accounts or inherited accounts people forget to update.
If your named beneficiary dies before you and you have not named a backup beneficiary, the account may fall back on default rules and could end up passing through probate.
Divorce, remarriage, the birth of a child, or a death in the family can make an old designation work directly against your current wishes. Beneficiary designations override your will. If your ex-spouse is still listed, the result may conflict with what you want now.
A minor cannot legally receive assets outright. Naming a child without a trust or custodial arrangement in place typically triggers a court guardianship proceeding to manage the funds, the opposite of what most parents want.
A will may direct equal shares to three children, but a POD designation naming only one of them on a large account will override the will for that account. The result: an unequal distribution that fuels family disputes.
We work with clients in northwest Mississippi and the greater Memphis area on wills, trusts, and estate planning built to work when it matters. If you haven’t reviewed your beneficiary designations recently or if your circumstances have changed, contact O’Brien Law Firm, LLC. Call us at 662-672-7619 or submit our contact form.
If you’re behind on your mortgage and your home is worth less than what you owe on your first loan, a second mortgage can feel like a weight you’ll never escape. But Chapter 13 bankruptcy offers a legal tool that many homeowners don’t know about: lien stripping. It can reclassify a second mortgage as unsecured debt and potentially eliminate the lien.
A lien is a creditor’s legal claim against your property. In a typical situation, both your first and second mortgage lenders hold liens on your home. Lien stripping is the process of removing a junior lien, like a second mortgage, when that lien has no real collateral backing it.
Under 11 U.S.C. § 506(a), a secured claim is only treated as secured up to the actual value of the collateral. If your home’s fair market value falls below what you owe on the first mortgage, your second mortgage is considered wholly unsecured.
That’s when stripping becomes possible. Lien stripping only works in Chapter 13.
Say your home is worth $180,000 and your first mortgage balance is $200,000. Your second mortgage, say $45,000, has zero collateral to attach to. Under 11 U.S.C. § 1322(b)(2), a Chapter 13 plan can modify the rights of holders of wholly unsecured claims.
When a junior mortgage is completely underwater, many courts, including courts in the Fifth Circuit, allow lien stripping in Chapter 13. If even a small amount of equity supports the second mortgage, lien stripping usually is not available.
You’ll also need to complete your full Chapter 13 repayment plan, typically three to five years, before the lien is permanently removed from your property.
Once stripped, your second mortgage balance gets treated like unsecured debt, similar to credit cards or medical bills. You repay a portion of it through your Chapter 13 plan based on your disposable income, and the remaining balance is discharged when you complete the plan. The lien is gone. That changes your financial picture considerably, both during repayment and long after.
We handle Chapter 13 bankruptcy cases for clients in northwest Mississippi and the surrounding area. If you’re struggling with a second mortgage and want to know whether lien stripping could work in your situation, contact O’Brien Law Firm, LLC. Call us at 662-672-7619 or submit our contact form.
