Saving Your Home: “Avoiding” Judgment Liens with Either Chapter 7 or Chapter 13

Farm House

Judgment liens on your home are traps waiting to be tripped. An extra and underappreciated benefit of filing for bankruptcy is that most of the time you can harmlessly spring these traps so that they can’t ever harm you again.

What’s a Judgment Lien?

A lien is a creditor’s interest in your property. A judgment lien is an involuntary lien that usually attaches to your home whenever a judgment is entered against you in a lawsuit. This can happen even if you settle with the creditor and regardless of whether you settle before you are sued or afterward. It’s even possible to have a judgment lien against your home without being aware that you were sued. In many circumstances the judgment creditor can execute on its judgment lien, resulting in a forced sale of your home to pay the underlying debt.

Judgment Lien “Avoidance” in Bankruptcy

Such a forced sale can be prevented by filing for bankruptcy, and in many situations the judgment lien can be gotten rid of forever through the judgment lien “avoidance” procedure. See Section 522(f) of the Bankruptcy Code.

This is quite an unusual procedure. That’s because bankruptcy wipes out debts, but generally does not wipe out liens. The most conventional kind of liens — such as your vehicle loan holder’s lien on your car or truck title, or your home lender’s trust deed on your home’s title — are certainly not wiped out with a bankruptcy filing.

So Why Can Judgment Liens Be “Avoided” in Bankruptcy?

Simply stated, Congress has decided that people’s homestead exemptions should come ahead of a creditor’s rights under a judgment lien. As will be explained in a moment, this “avoidance” power is limited to judgment liens that “impair” your homestead exemption. After all, undoing a judgment lien simply puts the creditor back in the same unsecured position it was in before it sued you and got the judgment lien attached to your homestead.

The Conditions for Judgment Liens “Avoidance” in Bankruptcy:

  • The real estate to which the judgment lien has attached must be real estate for which you qualify for and have claimed a homestead exemption.
  • That lien can’t just be any kind of lien, but must be a “judicial lien,” defined in the Bankruptcy Code as “a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
  • The “judicial lien” can’t be for child or spousal support, or for a mortgage foreclosure.
  • The judgment lien at issue must “impair” the homestead exemption, which generally means that it eats into the equity protected by the applicable homestead exemption. Specifically the law defines this “impairment” as follows: the value of all the liens on the house, including the judgment lien PLUS the amount of the homestead exemption that you would be able to claim if there were no liens on the house, MUST BE MORE THAN the value of the house (assuming you are its sole owner).
    Most states provide a set dollar amount for its homestead exemption, but Texas has no dollar limit (the limits are instead by acreage, regardless of value). The end result is that virtually all judgment liens (as long as they meet the other conditions above) can be “avoided.”
  • The “Avoidance” Doesn’t Happen Automatically

    One final thing: judgment lien “avoidance” doesn’t just happen in bankruptcy; it takes an additional legal procedure. That procedure — usually a motion filed by your attorney — is necessary or else the judgment lien will continue to attach to your home title. Also, that procedure must be done while your bankruptcy case is still open and active, or else your case will have to be reopened, costing hundreds more in court fees.

    So, if you own a home, an important additional benefit of filing for bankruptcy is to get rid of any judgment liens against its title. These are the kinds of services that an experienced, conscientious attorney will provide for you. Bailey & Galyen will give you this kind of expertise and thorough service. Please schedule a no-obligation, free, confidential consultation with us by calling 1-800-208-3104 or contacting us here.