Lien removal after bankruptcy is a complicated, but important subject. Debtors often discover liens after bankrutpcy. What can a debtor do to get rid of these liens? It depends! Read on for more information.
Abstracts of Judgment
A creditor can only obtain a judgment against a borrower if the borrower defaults on their debt. A creditor records an “abstract of judgment” with the government after the creditor wins a lawsuit against a borrower. The abstract of judgment creates a lien on any real property owned by the debtor in that county.
A debtor must clear the judgment lien if they ever want to sell their house, refinance, or really do anything with their property. Typically, this means that a debtor must pay off the judgment lien.
Most people are not aware of a judgment lien against their home until they go to sell their home. In fact, a typical credit report won’t necessarily disclose liens.
Chapter 7 Bankruptcy Doesn’t Affect Liens
A typical Chapter 7 bankruptcy does not get rid of abstracts of judgments or judgment liens.
The bankruptcy does eliminate the debtor’s personal responsibility to pay the debt. But a creditor will retain their lien on the debtor’s home even after the bankruptcy is over.
This means that a debtor still has to pay off the judgment lien, even after bankruptcy, if the debtor wants to sell or refinance their home. Luckily, there is a very powerful solution to this problem.
How to Remove Liens After Bankruptcy
A good bankruptcy attorney will fight to remove a judgment lien as part of a Chapter 7 bankruptcy. The court does not automatically remove liens. A debtor must file a Motion to Avoid Lien with the bankruptcy court in order to obtain a court order removing the lien.
What happens if a debtor does not file a Motion to Avoid Lien in the bankruptcy? In most cases, a debtor has options.
A debtor can reopen their already-closed bankrutpcy to file a Motion to Avoid Lien under certain circumstances. The creditor must have filed the judgment lien prior to the bankruptcy. And the lien must impair an exemption claimed by the debtor in their home.
Lien removal after bankruptcy is a complicated procedure that must be executed perfectly for the court to grant the request. Small deficiencies will leave the court with no option but to deny the motion. I strongly recommend that a debtor in need of filing a Motion to Avoid Lien retain a good bankruptcy attorney.
Do you need to remove a judgment lien after your bankruptcy was closed by the court? Contact my office at (916) 333-2222 to discuss your options.