Liens in Bankruptcy
How to handle Liens in Bankruptcy
Liens in Bankruptcy
When creditors sue you, they often place a lien on your home. Attorneys often overlook liens in bankruptcy, and the homeowner ends up having to pay the price. If you own real estate, and have been sued, there is an extra step you must take while in your bankruptcy case to remove the lien. Bankruptcy alone will NOT do it for you. You have to add another step to remove liens in bankruptcy.
When you don’t file a motion to remove the liens in bankruptcy, your no longer personally owe the debt, but the debt remains “attached” to your home. Nobody notifies you about this. Failure to file a motion to avoid, under 11 usc 522, or 11 usc 506, if the debt is an unsecured mortgage, leaves the lien attached to your home. You normally won’t know about it until you try to sell the property, then you’ll have a problem. I see this from time to time, when people fail to remove liens in bankruptcy while their case is open.
Liens you can get rid of
You can remove some liens from your property. Others are not removable. In both chapters 7 and 13, you can remove, or avoid, judgment liens. Judgment take against you by a creditor, often a credit card, personal loan or medical bill, but could be for personal injury or a landlord, can be attached to your property, and survive your bankruptcy.
You can remove some mortgage liens in bankruptcy
You remove some liens in bankruptcy in chapter 13, but not chapter 7. The unsecured mortgage lien is not a judgment lien. It is called a consensual lien because you agree, or consent, to have the lien placed on your home. Second mortgages, often referred to as Home Equity Lines Of Credit, or HELOC represent danger to your finances. The sellers of these mortgages don’t like to scare you with the “M” word, but these second mortgages attach to your home.
If the value of your home is more than the payoff on your first mortgage, you can remove, or avoid, the second mortgage, and have it treated like an unsecured debt in a chapter 13 case. Since many of my chapter 13 cases only pay a penny on the dollar, this represents a huge benefit to you.
In some cases, the ability to remove these second mortgages turns an “underwater” house with two house payments into a house worth want is owed on it, with only one house payment. When you wipe out the other debts in the process, the result is phenomenal for the homeowner.
Some liens you cannot remove in bankruptcy
Some liens are not judgment liens. Mechanic’s liens, and tax liens represent statutory liens. They are not removed by filing the same kind of motion which works for judgment liens. State law removes these liens only if the lien is invalid, like a mechanic’s lien filed in error or improperly. Bankruptcy can’t remove them. Only state court remedies are possible, and these seldom work.
What to do with liens you cannot remove
You can pay these liens which cannot be stripped off by filing a chapter 13. Because these liens get secured by your residence, they have a higher priority than your credit cards and other unsecured debts. The chapter 13 pays these liens, then marked “satisfied” so they no longer encumber your property.
You’ll want a very experienced certified bankruptcy specialist to review this with you and devise a plan to deal with these liens. Then, at the conclusion of your case, your property will be free of the liens.
I’ve been dealing with all kinds of liens for decades and can devise a plan that’s right for you.
Call West Law Office for a free consultation.
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