What happens to a judgment lien on my house when I file Chapter 7 Bankruptcy? Can I strip, remove, avoid the judgment lien?

  • Short answer:  nothing.  The long answer takes a little explanation.

    A chapter 7 bankruptcy discharges your personal liability for any judgments against you.  So, let’s say that Bonneville Collections has a judgment against you for $10,000.  Your personal liability for that $10k judgment is wiped out.  However, the judgment remains attached to any real property you own, maybe.

    Prior to 2002, if a creditor received a Utah judgment against you, it would automatically attach to any real property you owned in that county.  There was a law change where the creditor had to take an additional step and physically record the judgment with the local County Recorder.  The creditor could record the judgment against a specific piece of property, or the judgment could be recorded against your name, and then it would automatically attach to any piece of real property in which you had an interest.

    So, let’s say you file a chapter 7, you have a judgment, it is properly recorded against you, and you have a home.  Then it is attached to your home, and the bankrupcy doesn’t get rid of it.  You have to take an additional step:  you must file a Motion to Avoid Judgment Lien on Real Property.  (This is not part of your normal bankruptcy, and every bankruptcy attorney, myself included, will charge you more to file and prosecute this motion).

    In a Motion to Avoid Judgment Lien on Real Property, you can strip, or remove the judgment lien from the home, so long as there was no equity security the judgment.  So if your home is worth $200,000 and you owe $210,000 on your mortgage, then there is no equity for the judgment to attach itself to.  Even better, if there is equity, Utah law protects your first $30,000 of equity, and the judgment lien can still be stripped off of the home.  judgment lien

    The actual bankruptcy code section at issue is 522(f)(2)(a), where the judgment lien can be stripped so long as :

    (2)

     (A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of—

     (i) the lien;
     (ii) all other liens on the property; and
     (iii) the amount of the exemption that the debtor could claim if there were no liens on the property;

    exceeds the value that the debtor’s interest in the property would have in the absence of any liens.
    Just remember that this is not a normal part of your chapter 7 bankruptcy, and your attorney will charge you more.

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