At least a few times a month, I’ll get calls from people that go something like this: They filed bankruptcy several years ago. They’re now trying to sell or refinance their home. The title company has discovered a judgment lien that has to be eliminated before the refinancing or sale. Once the homeowner discovers the lien and realizes that it was placed on their home prior to their bankruptcy, they’ll call the creditor and ask them to remove the lien.
Unfortunately, the only thing that bankruptcy will automatically eliminate is the underlying debt to the creditor, meaning just the money that is owed. If a creditor has filed a lawsuit and gotten judgment, the creditor can record that judgment and place a lien against any real estate. The creditor will remove the lien, but will want to be paid the amount of the judgment or some settled amount.
It’s possible to remove judgment liens in bankruptcy, but it requires filing a motion to “avoid” the lien. If you didn’t disclose the lien to your bankruptcy attorney, or the attorney didn’t run a title report to discover such liens, then no motion will be filed. Most attorneys will charge above their usual flat fee to prepare a motion to avoid.
In order to get rid of a judgment lien, at the time your bankruptcy case was filed there must have been less equity in the home than is protected by the homestead exemption. The current homestead exemption is $75,000 (the previous amount was $60,000). If your home is worth $75,000 (or more) than what you owe, it’s likely that the judgment creditor will fight your motion and ask the court to leave the judgment lien in place.
So, what happens if you discover the lien after your bankruptcy has been filed? The good news is that it’s not too late. First, your attorney will need to file a motion to reopen the case. The court charges a fee to reopen the case (currently $240.00). Once the court reopens the case, your attorney will have to file the motion to avoid the lien. The judgment creditor has 28 days to respond to the motion. If it doesn’t file a response, the court will issue an order avoiding the lien, which you can record with the county recorder’s office. This order will effectively nullify the judgment lien and clear the way for you to sell or refinance your home.
If you need help removing a judgment lien after your bankruptcy case has been filed, give us a call.