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Monday, April 19, 2010

Using Bankruptcy to Remove a Judgment Lien

Using Bankruptcy to Remove a Judgment Lien

In bankruptcy judgment or liens against you may be removed entirely if you can qualify for a Chapter 7 petition. When the unemployment rate rises, more people are having a difficult time paying their bills. Creditors become more aggressive in their tactics when trying to collect a debt. They may initiate a lawsuit against you in order to get the money they are owed. If you fail to respond to a lawsuit within a specific period of time, the creditor may be able to obtain a judgment against you. They can take the judgment and have your wages garnished or place a lien on any property that you own.

A discharge in bankruptcy voids the underlying judgment, but the discharge does not automatically remove a judgment lien from your property. If you qualify, your might be able to file a motion to avoid or cancel the line under Section 522(f) of the Bankruptcy Code.

Under Section 522(f), you can remove most types of judgment liens if the lien impairs an exemption that you would be entitled to claim under the law. Although bankruptcy is a federal law, it is largely state law that determines what property you can an cannot keep when a debtor files for bankruptcy.

If you have a judgment lien against your home and want to learn more about how to remove it in bankruptcy, please feel free to contact us.

Getting a Judgment Removed Through Bankruptcy

Bankruptcy is a legal proceeding governed by federal laws. However, state laws dictate the amount allowed for a homestead exemption.  Section 522(f) under the federal bankruptcy code allows the homeowner to remove a judgment if the lien impairs the debtor’s ability to claim the maximum amount allowed under the homestead exemption.

Which Debts Can Be Discharged?

Consumers may choose to file a Chapter 7 bankruptcy, which will eliminate all of their unsecured debts. The bankruptcy laws were changed in 2005 for individuals who wish to file under Chapter 7 protection. Certain requirements must be met before a debtor can qualify for this option. If the debtor’s monthly income is less than the average median income in the state where they reside, they can file for Chapter 7. Petitioners who do not meet this requirement will have to file for Chapter 13, which is a reorganization of their debts. Judgments and liens that can be legally removed through Chapter 7 include:
  • Federal Tax Liens—These can be removed if the IRS has not filed a lien against your property and the taxes were due at least three years prior to filing. You must have received an assessment notice 240 days before filing your bankruptcy petition.
  • Credit Card Debts—If a credit card company has obtained a judgment against you, this can be totally eliminated through bankruptcy. Some lenders can object to the discharge of debt through an adversary proceeding, but this rarely happens.
  • Civil Lawsuits—Nearly all civil judgments can be discharged unless they were due to driving under the influence (DUI).
  • Unsecured Loans—Any loan that is not secured by collateral, such as a vehicle or property can be wiped out under Chapter 7.

What Does the Bankruptcy Court Consider a Priority Debt?

The Federal Bankruptcy Court will examine your monthly income and weigh this amount against your currently monthly obligations. Certain debts take a priority over others and cannot be discharged through bankruptcy. If you have a judgment or lien against you for any of the following, it cannot be eliminated by the bankruptcy court:
  • Monthly child support obligations
  • Spousal support payments
  • Certain fines, penalties and court costs
  • Restitution owed to a victim of a DUI personal injury lawsuit
  • Student loans, unless paying these back imposes an undue hardship
  • Income taxes that are less than three years old
Bankruptcy will also prevent judgment being filed against you. If the creditor files a lien after the bankruptcy, you may be able to have your case reopened to get this discharged.

Consulting With a Bankruptcy Attorney

When you meet with a bankruptcy attorney prior to filing, you will be asked to list all of the creditors that you owe money to. If you want to discharge a lien or judgment, make sure that your lawyer specifically lists the name of the creditor on the bankruptcy petition. Failing to do so will result in the judgment not being eliminated.

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