By Ryan C. Wood
One of the main purposes of filing bankruptcy is to obtain the bankruptcy discharge. A discharge of your debts in bankruptcy releases you from personal liability for the payment of the debts. There are certain debts that cannot be discharged in bankruptcy (such as child support obligations, student loans (Undue Hardship Discharge exception), recent tax obligations, etc.). In addition to these nondischargeable debts, if you have any secured liens on your property (such as mortgages or car liens), those liens survive the bankruptcy. If you do not pay for the mortgage or the car, the house or car can be foreclosed or repossessed because you used your house or car as collateral for the debt. What happens if you have a judgment lien prior to the filing of your bankruptcy case? Is this judgment lien enforceable after your bankruptcy case is completed and the order of discharge entered? It depends.
Judgment Liens on Real Property
Judgment liens attached to your real property prior to the filing of your bankruptcy case can be avoided if they impair your exemptions. Your bankruptcy attorney should be able to help you file a motion to avoid the judgment lien if this is the case. This can be done in either a Chapter 7 or Chapter 13 bankruptcy case. If the judgment lien is avoided the lien is extinguished and is not enforceable after your bankruptcy case is completed and the order of discharge entered. If the lien cannot be avoided because it does not impair an exemption and there is sufficient equity in your home then the judgment lien remains even after your bankruptcy case is completed. If you have no equity in your home, you owe more on your mortgage than the house is worth, you can strip off judgment liens when filing a Chapter 13 bankruptcy. Your bankruptcy lawyer can help you file a motion to value the real property and strip off the judgment lien along with other junior liens like second mortgages or equity lines of credit in a Chapter 13 bankruptcy case.
Judgment Liens on Personal Property
If you did not own any real estate at the time you filed your bankruptcy case then whether or not the judgment lien attached to personal property depends on the jurisdiction you live in. If the lien did attach to personal property then you can file a motion to avoid the lien if it impairs your exemptions. If the judgment lien did not attach to any personal property, the lien is extinguished once you receive a discharge of your debt. The judgment lien cannot attach to any property you acquire after your bankruptcy case is closed. If any judgment creditor attempts to collect on the lien it would be a discharge violation and the judgment creditor can be subject to sanctions from the court.
My Title Company Refuses to Close on my After-Acquired House
There have been instances where the title company refuses to close on a new house that is acquired after your bankruptcy case is completed until the judgment lien is satisfied. That is contrary to the bankruptcy laws, especially 11 U.S.C. §524 that states that a discharge in the bankruptcy case voids any judgment and operates as an injunction for any commencement or continuation of any collection activity against the bankruptcy filer. If the title company refuses to close on your house for this reason, you have several different options: (1) explain to your title company or their attorney that their actions violate 11 U.S.C. §524 and are sanctionable, (2) fire your title company because they do not know what they are doing and hire a new title company, (3) file your discharge order in the county where the judgment lien is filed, (4) contact the judgment creditor and have them release the lien, (5) if the judgment creditor tries to place the lien on the after acquired property they can be sanctioned by the court for a discharge violation, or (6) reopen your case to file a motion to avoid the lien. Please be aware that in some jurisdictions the motion to avoid lien will be denied because the bankruptcy filer did not own any property on which the judgment lien had attached before the bankruptcy and therefore there was no lien for the bankruptcy filer to avoid. See in re Hamilton, 286 B.R. 291.