Liens on Your House in Bankruptcy
Over the last several years, given the housing market bubble, many people considering filing Chapter 7 bankruptcy are homeowners. For these people, they often overlook protecting their property from judgement liens. This is an important concern for all homeowners filing bankruptcy. Past due creditors often times sue debtors. These creditors get money judgments against them. Often, the creditor will use the judgment to garnish a person’s wages or bank accounts. In fact, that garnishment is often what drives people to start the bankruptcy process.
However, many creditors, in a much more quiet fashion, file claims on the debtor’s house or other real property. These claims, called liens, can prevent the debtor from selling or transferring the property even years after the bankruptcy. Now, a person who has researched the bankruptcy process may be wondering, “how is that possible? Are my debts wiped clean by the bankruptcy?” Yes, they are. But because the lien is not, itself, a debt, it doesn’t automatically clear. Fortunately, though, with the proper procedure they you can deal with them. Further, you can eliminate liens on your house in bankruptcy.
Eliminating Liens on Your House in Bankruptcy:
First, a prospective debtor needs to determine if there are any liens against their property. This is especially important if, as noted, a creditor has won a judgment against him or her. The best way to figure out if any liens exist is to simply go to county records and ask. The creditor must file the lien with that office against the property in question.
As the owner of the property, the debtor is entitled to know if someone has filed a lien. For most debtors a lien wont exist against the property but beware. Although its very easy to remove it when the bankruptcy is filed its a problem once the cases closes. If you don’t remove it when you file the case you have to reopen the case. This is possible but costs you more money. In particular there’s a filing fee to reopen and its about $300.00
Inform Your Bankruptcy Attorney About the Liens on your House:
Once a bankruptcy attorney knows about the liens, he or she determines if the underlying debt is dischargeable. Certain liens, like tax liens, may be unavoidable. But others, like judgments from lawsuits are avoidable. What the attorney files is a document with the court called a “Motion to Avoid Lien”. This document informs the creditor that since the underlying debt is receiving an expected discharge, the court should also expunge the lien. The creditor then has two weeks to respond. If they do, the judge will hold a hearing.
However, in practice, this rarely happens. A couple of weeks after filing the Motion, if the creditor has not responded, the attorney requests that the court file an order approving the motion. The court will do so, and at that point, the lien nullifies and voids. The debtor may now sell the property free and clear to a buyer.
Removing Judgement Liens After The Bankruptcy Closing:
One last note about Motions to Avoid Liens is that they are one of the few things that can be done after a bankruptcy case has been discharged and closed. If a debtor who filed bankruptcy in the past, even several years in the past, discovers that there are liens against his or her property relating to debts discharged in the bankruptcy, the debtor (through an attorney) can ask the court to reopen the case. The court requires a filing fee, but assuming no creditor objects, the case reopens. Once the case reopens, the attorney files motions to avoid liens. This offers protection to debtors who received liens agaisnt their property without their knowledge.
In closing, one of the most important things a home owning debtor can do in preparing for bankruptcy is to check county records and determine if any liens have been placed against the property. In many cases, this search will turn up nothing. However, for the debtors who do find liens, they can then ask their attorney to avoid those liens and protect the value and transferability of their home in the years to come.
Contact a Bankruptcy Lawyer in Wagoner:
If you’re considering bankruptcy in Wagoner County and want to make sure that filing chapter 7 rids your house of liens we can help. We’ve helped countless homeowners keep their home and file motions to avoid liens in bankruptcy. Call today for a Free bankruptcy consultation.
