avoid judgment lien

I found a judgment lien on my home, but I filed for bankruptcy. Help!

I get calls periodically from people who had filed for bankruptcy and got their discharge.   They are trying to refinance or sell, and a title search pulls up an old judgment lien recorded against their home.   The clients are confused, since that debt was listed on their bankruptcy petition.  What gives?

Creditors can record a judgment lien against assets owned by the debtor.  This is called perfecting their lien.   The lien will stay on the property title until it is paid off.   Most debtors make the wrong assumption that these liens will go away with a bankruptcy.    Yes and no.   It’s not automatic.   A good bankruptcy attorney knows this.    A debtor needs to bring a special motion in the bankruptcy case to “AVOID THE JUDGMENT LIEN.”   Bankruptcy does discharge the debt, meaning the creditor can never request that the debtor pay this debt directly after the bankruptcy.   The lien passes thru bankruptcy unless it is avoided, which is done by motion from the debtor.

How to avoid the lien?  Does my house qualify?   

You can avoid a lien in either Chapter 7 or Chapter 13 Bankruptcy.  First you need to get a copy of the judgment lien. This can be obtained at the county recorder’s office.  Then you need to check the value of the home.   This can be done by appraisal, by market comparable, or by a web estimate, such as Zillow.com.  Then, you look to see the amount of your claimed homestead exemption from Schedule C.   Debtor’s can only avoid a judgment lien on their home.  Also, the lien must impair the homestead exemption.  If it doesn’t, the lien is not avoided pursuant to 11 U.S.C. §522(f)(1)(A).   Subtract mortgages from the value of the home.  Then subtract the amount of the judgment lien.   Finally, subtract the claimed exemption amount.  If the result is less than zero, congratulations, the lien can be avoided.  If the value is greater than zero, but less than the amount of the exemption, the lien can be partially avoided and reduced down.  If it is greater than the exemption amount. then you cannot avoid the lien and should seek other repayment options.

Example 1

Home value: $1000,000.

Mortgage $80,000.

Judgment lien $10,000

Claimed Homestead Exemption $15,000

$100,000 – $80,000 – $10,000 -$15,000 = -$5,000 -> Lien Avoided


Example 2

Home value: $1000,000.

Mortgage $0.

Judgment lien $10,000

Claimed Homestead Exemption $15,000

$100,000 – $10,000 – $15,000 = $75,000 -> Lien Not Avoided


Example 3

Home value: $1000,000.   

Mortgage $70,000.

Judgment lien $10,000

Claimed Homestead Exemption $15,000

$100,000 – $70,000 – $10,000 -$15,000 = +$5,000 -> Lien Reduced to $5,000

About Author

Terrance Leeders

Chicago Bankruptcy Attorney, husband, father, Cubs fan.

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