Bankruptcy may be your last line of defense in an attempt to save your home or other assets from creditors. After months of attempting to negotiate and dealing with collection agencies, you may finally breathe a sigh of relief knowing your bankruptcy case is complete. Imagine your surprise, however, if you learn that even after your bankruptcy case has closed, a lien remains against your home and must be cleared before you are free to mortgage or sell it.
Most people who file bankruptcy will have at least one mortgage on their primary residence. A mortgage is a secured lien and will not be simply wiped out or voided by the court as part of bankruptcy proceedings. Mortgages are usually dealt with in bankruptcy by reorganization of the payment structure or by the court granting the lender’s right to foreclose.
If the bankruptcy court grants a discharge from your debts and obligations, unsecured creditors may no longer attempt to collect from you personally or garnish your current wages to satisfy those discharged debts. An unsecured creditor is one who has no specific collateral securing its debts. Unsecured creditors may include a credit card company or an individual who obtained a judgment against you in court. If an unsecured creditor filed a lien in the property records based upon the indebtedness owed, however, that lien remains an encumbrance upon your property unless the judge issues a separate order removing or avoiding it. A discharge of debts does not wipe out liens against real property.
Order Avoiding Lien
In order to remove a lien against a house and other real property, you must petition the bankruptcy court to avoid the lien and obtain the judge’s order granting your petition. Once you have obtained the order avoiding the lien, filing it in the real property records where the lien is also filed puts the public on notice that there is no longer a lien against your home. A judge is not obligated to remove a lien and may not do so unless the lien negatively impairs exempt equity you have in your home.
You may be unaware that a lien remains against your property until a title company or attorney discovers it in a title search when you are attempting to sell or mortgage your home. If a lien remains against your property after bankruptcy yet you qualified during bankruptcy to have it voided by the court, the bankruptcy case may be reopened to request an order avoiding the lien.
References & Resources
- Fresh Start Legal Group: Bankruptcy Frequently Asked Questions
- U.S. Courts: Discharge in Bankruptcy
- Dunne Law Offices, P.C.: Avoiding (Getting Rid of) Liens in Chapter 7 Bankruptcy
- Patrick J. Conway, LLC: Bankruptcy Stops Wage Garnishments Before They Can Hit You
- The Journal of the DuPage County Bar Association: Opening a Closed Chapter 7 Case to Avoid a Judicial Lien under 11 USC 522(f)(1) and USC 522 (f)(2)(a)
- Jupiterimages/Photos.com/Getty Images