While bankruptcy can discharge your personal responsibility to repay certain debts, if the creditor attached a lien to your property before you filed for bankruptcy, that lien will stay on unless very specific steps (requesting a lien avoidance) are taken in your bankruptcy to also get rid of the lien. For example, let’s say that you owed $10,000.00 on your Visa credit card. You couldn’t pay for it and Visa sued you and won a judgment against you in the amount of $10,000.00. They then decided to put a lien on your house to increase the likelihood that you would pay off the judgment (after all, they weren’t very successful getting paid before you were sued). Then you file for Chapter 7 and successfully discharge the $10,000.00. Visa can no longer ever try to collect on it. Years later you try to sell your house, only to find out that there is a $10,000 lien on your property. That is not the time to start worrying about the lien. During your bankruptcy, a debtor in that position can request what is called Lien Avoidance. If you did not give the creditor a consent judgment, the property that the lien attached to (usually a house) must be properly dealt with in your bankruptcy by claiming it as exempt on what is called a Statement of Intention and by filing a separate motion has to be timely filed with the court. A successful lien avoidance requires a showing of three things:
- the lien stems from a monetary judgment against you (you did agree to it as part of a settlement)
- you have equity in the asset that you can claim an exemption against, and
- the judgment lien eats up some or all of the equity that you could have exempted.
Any time that you are dealing with a judgment and a bankruptcy, the issue of lien avoidance at the very least needs to be discussed with your bankruptcy lawyer. Do so early on.
If you have a judgment against you that you cannot pay off, bankruptcy might be the solution you have been looking for. Look, no one sets out wanting to file for bankruptcy but if you are in the unfortunate position described above, it may really be your best option. Let’s find out. Give us a call to set up a no-pressure, no obligation time to discuss your options. In any case, be sure to download your free boook about Bankruptcy Myths Exposed.