Liens typically aren’t a problem in Chapter 13 bankruptcy proceedings. Chapter 13 allows you to “strip off” liens that have been placed against your property if the property's value is insufficient to cover the first mortgage and any other liens against it. Chapter 7 bankruptcy is a different story, however, particularly if you’ve already received a discharge.
Liens Survive Discharge
A Chapter 7 discharge relieves you of responsibility for your debts, but the debts still exist -- you’re just no longer obligated to pay them. If a creditor sued you and got a judgment against you before you filed for bankruptcy, and it then used the judgment to place a lien against your property, filing for bankruptcy won’t affect the lien. It lives on.
Reopen Your Case
You can ask the court to “avoid” or remove a lien as part of your bankruptcy proceedings, but your case must be active to do this. If you’ve already received a discharge of your debts, you’ll have to file a motion with the court, asking to reopen your bankruptcy case.
File a Motion to Avoid the Lien
After you’ve reopened your case, you must file another motion that asks the court to avoid the lien. You must establish the fair market value of your property and show that it’s worth less than the outstanding loan against it. If it’s worth more and it's your residence, you can apply a bankruptcy homestead exemption to the equity. If the equity is more than your available homestead exemption, you may not be able to avoid the lien.
Read More: Motion to Avoid a Lien in Bankruptcy
Beverly Bird is a practicing paralegal who has been writing professionally on legal subjects for over 30 years. She specializes in family law and estate law and has mediated family custody issues.