Can I Get a Judgment Lien Removed in Bankruptcy?
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In financially difficult times, as a homeowner, you may find yourself in the uncomfortable position of owing money you can’t afford to pay, leading a creditor to obtain a judgment lien on your home. A lien can impact your ability to sell your home, leaving you to wonder if a judgment lien can be removed in bankruptcy.
Filing bankruptcy is not an automatic solution to remove judgment liens from your property, but there is a process called avoiding a lien which allows a debtor to ask the court that a judicial lien or non-purchase money lien be eliminated during the bankruptcy process.
This is how it works: When you file for bankruptcy, you are entitled to keep some of your property. The amounts of certain types of property you are entitled to keep are called exemptions. If the property value of your home is worth less than the amount of the homestead exemption, which is the amount of equity in your home that you get to keep, the bankruptcy court will allow you to avoid liens on your home to make sure you receive the benefit of the homestead exemption.
If the property is worth more than the exemption, the amount of the lien may be reduced so that the lien does not interfere with the exempt portion of the property. The new lien amount will be equal to the difference between the value of the property and the amount of the exemption.
It’s important to understand that only judicial liens and non-purchase money liens can be avoided in this way. This means that a lien resulting from a loan for the purchase of property that served as its own collateral such as a car lien cannot be eliminated in a Chapter 7; however, the negative equity in a car may be avoided if certain conditions are met in a Chapter 13. Furthermore, if a second lien on your home has no equity, that second lien can be avoided through a Chapter 13 bankruptcy, but not through a Chapter 7 bankruptcy.