If you currently have any judgment liens against your car or home, there’s a good chance you can eliminate those liens by filing Chapter 7 bankruptcy, otherwise known as lien avoidance. Here are some common cases where you can potentially avoid certain judgment liens.
Types of Judgment Liens You Can Possibly Avoid
If everything listed below is true, then a nonconsensual judgment lien regarding your personal property can potentially be avoided:
• The lien was a result of a money judgment that was issued by the court.
• You have the right to claim an exemption with regards to at least some part of your property’s equity.
• The lien may lead to a loss of all or some of the exempt equity in the case of the property getting sold. That is to say, the exemption would ultimately be impaired.
If you can meet any of these given conditions, you can then remove the said judgment liens concerning all exempt property, such as any vehicles or real estate property.
Avoiding Judgment Liens
If possible, take advantage of lien avoidance, especially if it’s a lien that can be wiped out entirely. Even if you no longer want or need the property in question, you can potentially avoid the lien by selling the property and spending the money on other things.
In order to keep everything as simple as possible, it may be in your best interest to avoid liens only on property that’s totally exempt. In doing so, the lien will be entirely eliminated and you can own the said property outright, without the need to pay a single dime to the creditor.
In many cases, even partially avoiding a lien is often helpful. However, in time you’ll need to pay the remaining amount on the lien if your property is subject to foreclosure or repossession on the remainder of the lien or has a title document. More often than not, you’ll be required to pay off the entire amount of the lien in one lump sum. Some creditors, however, are willing to accept payment installments, particularly if you negotiate the lien’s value.
Avoiding a Judgment Lien While Filing for Bankruptcy
Many people who file for bankruptcy aren’t even aware they have any liens regarding their property or may not realize that they have the ability to eliminate them. Some people may not have the power to get rid of their liens when initially filing for bankruptcy (usually due to no exempt equity concerning the property), but later on eventually become eligible to eliminate them. In most cases, bankruptcy courts are reasonably liberal when it comes to letting a debtor reopen their case to file a motion and potentially avoid a lien.
Chapter 13 Bankruptcy: Avoiding Liens
If a certain set of conditions are ultimately met, it’s possible to decrease the primary balance of a few liens through the process of a ‘cramdown’ regarding Chapter 13 bankruptcy. In general, a regular example of this situation is an auto loan cramdown that works to decrease the balance of your loan to the car’s overall value. However, a person can also cramdown liens concerning other personal property in addition to mortgages on investment or rental properties (excluding you main residence).
Furthermore, if you currently have a completely unsecured second mortgage or some other kind of junior lien regarding your home along with your main residence, it’s possible to eliminate them through a key process known as lien stripping when filing for Chapter 13 bankruptcy. If you decide to strip a junior lien, it’s basically considered unsecured debt (think credit cards or medical bills) in your bankruptcy case.
Once you fully complete your repayment plan and obtain a discharge, your creditor is then obligated to remove the lien off the property. But, in order to strip the lien, some other senior lien or the balance of your original mortgage needs to exceed your property’s entire value.
For example, let’s say John owns a home that’s worth $300,000. He’s paying on a $325,000 primary mortgage along with a $75,000 second mortgage on his property. Since his primary mortgage balance exceeds his home’s value, his second mortgage is considered wholly unsecured. Therefore, if John decides to file for Chapter 13, he can eliminate his second mortgage using lien stripping. Once his bankruptcy process is completed and he gets a discharge, his second mortgage is abolished and only John’s first mortgage lien remains on his home.
No Home Equity and Avoiding Liens
In some cases, courts let debtors avoid judicial liens even when there wasn’t any equity in their property. Their overall reasoning appears somewhat confusing since it doesn’t seem plausible for a lien to damage an exemption if there isn’t any equity to actually exempt in the first place. Nevertheless, if your home has a lien against it and you have negative equity or no equity, it’s in your best interest to talk to a reputable NYC Bankruptcy Law Firm on whether or not that particular lien can possibly be avoided while filing for bankruptcy.