Can a Creditor Put a Lien on Property If Chapter 13 is Dismissed?

By Kevin Owen

The primary reason you likely sought Chapter 13 bankruptcy protection is to protect your property from foreclosure or repossession by your lenders. Once your bankruptcy case was filed, you were given protection against your creditors from any collection activities. However, if your bankruptcy case is dismissed your lenders can take actions against you and your property, including placing a judicial lien against it.

Chapter 13 Dismissal

In Chapter 13 bankruptcy, you were placed on a three- or five-year plan where you would make monthly payments to a court-appointed trustee, who in turn would pay your creditors. If you successfully complete your repayment plan, any liens and other debt actions against you are discharged. However, your bankruptcy case could be dismissed if you fail to make these payments, failed to properly submit your paperwork to the court or did not attend credit counseling. While you were under your Chapter 13 plan, you were protected by any collection actions by your creditors through an "automatic stay." If your case is dismissed, you lose all protection from creditors afforded by the automatic stay.

Judicial Property Liens

A property lien is a court-approved claim against your assets, such as your house or car, that allows a creditor to take possession of the property if you do not pay a debt. Generally a judicial lien arises after a court enters a judgment in a lawsuit against you and orders you to pay damages to the party that filed the lawsuit. Creditors generally file civil lawsuits to recover unsecured debts, such as credit card debt and personal loans. After a creditor obtains a judgment, it tries to collect on it by placing a lien on your property. The lien allows the creditor to take your property and sell it to pay off what you owe. In addition to judicial property liens, you may also be subject to a mechanic's lien against your home if you owe money to a contractor who performed work on your house.

Get a free, confidential bankruptcy evaluation. Learn More

Real Property

If you are in bankruptcy and own a home, you likely have a mortgage on the property. If a creditor attaches a lien against your home, the judicial or mechanic's lien is secondary to the mortgage. That means if you are insolvent and in foreclosure, the bank gets first priority over seizing and selling your home. Any remaining money left in the property, if there is any, is given to the creditor that has a judicial property lien against your home.

Lien Stripping

Under Chapter 13 bankruptcy you may be eligible to remove any liens against your property if the lien impairs your ability to take full advantage of your bankruptcy rights. Under Chapter 13 you are provided certain exemptions that allow you to reduce the amount of monthly payments you make to your creditors. If you live in a state that allows you to preserve all or most of your home's equity during bankruptcy through a homestead exemption, you may be able to use the homestead exemption to strip any liens placed on your home. If you do not have sufficient equity in your home to cover the judicial lien and the full amount of your state's homestead exemption, the lien is said to "impair the exemption" by preventing you from using the full amount of your bankruptcy protection for your home. In these cases, the bankruptcy court has authority to strip the judicial lien from your home.

Get a free, confidential bankruptcy evaluation. Learn More
Eviction Notice & Bankruptcy
 

References

Related articles

How Does Bankruptcy Affect Homebuying?

Bankruptcy can give you a fresh financial start by allowing you to restructure or erase your debts under a court-supervised process. However, your bankruptcy case doesn’t go away once your court process is complete. Bankruptcy stays on your credit report and can hurt your ability to obtain credit in the future, including home loans.

Can a House Be Sold If You Are Going Through Bankruptcy?

Your house is usually your most valuable asset, especially if it is worth far more than you owe. Depending on the type of bankruptcy, you might have the option to keep your house or voluntarily sell it. On the other hand, the court-appointed bankruptcy trustee may force the sale. However, bankruptcy may even allow you to keep your house if you are facing foreclosure.

Can a Primary Residence Be Seized if You File for Bankruptcy?

Although filing for bankruptcy can help avoid being overwhelmed by debts, you may not be able to keep all your assets. This depends on the type of bankruptcy you file and whether you take the necessary steps to keep your home. However, your situation may require you to consult with a bankruptcy attorney if it’s too complicated to make these decisions on your own.

Bankruptcy

Related articles

Can Creditors Attempt to Get Money After a Discharge?

When you file a petition for bankruptcy, you are asking a federal court for protection from creditors and time to work ...

What Happens When a Bank Charges Off Your HELOC After a Chapter 7 Discharge?

If you file for a chapter 7 bankruptcy, you are asking a federal court to protect you from collection actions and ...

Can You Refuse to Reaffirm a Second Mortgage During Bankruptcy?

Although you've filed for bankruptcy, it is still possible to keep your home despite having a second mortgage on the ...

Chapter 7 Bankruptcy Laws for Personal Debt

Chapter 7 bankruptcy is one of several types of bankruptcy available to debtors. Under a Chapter 7 bankruptcy, any ...

Browse by category
Ready to Begin? GET STARTED