Monthly Archives: February 2020

How do you get rid of (avoid) judicial liens in a chapter 13 bankruptcy?

It’s complicated.

Basically, you take your home value, subtract your mortgage and your homestead exemption, and if there’s any money left over, judicial liens stay attached to your home. If there’s no money left over, you can remove them or avoid them in a chapter 13 bankruptcy.

This will not be a complicated discussion of the lien avoidance. Here’s the code section we rely on in the Bankruptcy Code section 522(f) :

(f)(1)Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—(A)a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5);

I am also attaching a Lien Avoidance Worksheet that we’re required to use here in Utah. You can find the form here:

Here is the best kind of example I can give you. I am cutting and pasting an email with one of my clients showing my calculations:

Sorry, it was well past my bedtime last night and I didn’t give a good full response.

Home Value/Exemptions
Here are the numbers:
$127000 — first mortgage
$42,000 — 2nd mortgage
$42,000 — homestead exemption (we can’t claim a double exemption because your wife is not on title)

= $211,000 of the home is safe (protected)

then we get to throw in a proposed 6% realtor’s fees even if someone considered sell it which is another 12,000, so

$223,000 is safe from normal creditors when we figure out repayment plan in the 13.

Stripping Judgment Liens
As for judgment liens, they only attached to your house if the creditor actually takes the judgment and records it with the Utah County Recorder. With these, I cannot claim that extra $12,000 in realtor’s fees if I try to strip them.

If the home is worth less than $211,000 I can strip or remove those judgment liens. That way, if you sell or refinance one day, they never get paid because they are no longer attached.
If the home is worth more than $211,000, the liens could stay attached and would eventually get paid when you sell/refinance.

Judgments that attached and became judgment liens

Here are the judgments that actually filed with the Utah County Recorder and became judgment liens (much less than we thought)

$502.87 Bonneville, attached on 10/16/2017
$6,324.45 Cavalry SPV, attached on 12/13/2018
$1,771.71 Midland, attached 1/29/2019

Judgments that are not attached and are not judgment liens
Here are the judgments that did NOT become judgment liens. These are NOT attached to the home.
Discover — they attached a $12,000 lien on 7/31/2017 and then released it on 11/18/2019 even though they shouldn’t have
Barclays for $8k
Cherrington for $3.5k

What this means is that if the home is worth over $211,000, then Bonneville attaches to the next $502.87 of value, then Cavalry to the next $6,324.34 of value, and then Midland for the next $1,771.71 of value.

As I said, it’s complicated.

Remember: even if a creditor get a judgment again you, it does not automatically attach to your home (here in Utah). After getting the judgment, the creditor still has to go file it with the County Recorder to create a judicial lien against you home.

Now that I’ve filed bankruptcy, can I stop paying my second mortgage (or heloc or home equity line of credit)?

Sure, but only if you want to lose the home!

In most cases, bankruptcy wipes out your personal liability for debts, including secured debt like mortgages and car loans. However, those secured debts are still secured (attached) to your property. In other words, the mortgage is secured by your home. If you want to keep the home, you still need to pay the debt attached to it. Even if your personal liability is wiped out, they can still come after the property if you stop paying for it.

This morning, I started going through my morning email and saw the following question from a client in a chapter 13 case:

I do not make my monthly payments for my home equity anymore do I? is the home equity not included in the bankruptcy? How am I supposed to afford paying the monthly amount to the trustee, the home equity payment, mortgage, and utility bills?

It’s valid question. The horrible answer is that you have to pay for things if you want to keep them.

Home equity lines of credit (or HELOCS) are confusing to most people. Many clients think that these are not “real” mortgages and can be wiped out like a credit card. This is wrong. A heloc is a real 2nd mortgage. It is attached to your house, and if you want to keep the property, you have to pay the loans attached to it.

I discharged my second mortgage in a chapter 7 bankruptcy years ago. Now they are threatening to foreclose. Why?

What are the median income figures for bankruptcy in Utah (February 2020)? (gross or net)?

Basically, if you are over, then you are a chapter 13.  If you are under, then you are a chapter 7. (The current figures are at the bottom of this page).

W2 wage earner —– Normally, when I ask someone how much they make, I am trying to determine if they can qualify for a chapter 7 case. Most people can give me a straight answer because most people have steady W2 income. These cases are fairly straightforward.

High income client — If I am dealing with a person with W2 income who makes too much money, I won’t get a straight answer. They will inevitably ask the following question: “Are we talking about after all my expenses?” The annoying attorney-phrased answer is “kind of.” The moment someone says this, I know that they’ll be a complex case and most likely a chapter 13 repayment type of case. I can subtract standard IRS averaged expenses, reasonable car payments, alimony/child support, charitable contributions, and a slew of other expenses, but those expenses are generally standard expenses that average clients can take out. I just need the gross income as a starting point. I’ve come to realize that the reason they ask about expenses is because they subconsciously know that they make too much and are hoping that I can run my figures after taking out luxury items such as their $250 a month pet insurance or $950 Lexus lease. (I don’t).

Here’s a good recent example: I ask a potential client for her income and her husband’s income. She says they each make $xxx an hour. Notice that she didn’t give me a straight answer. I ask for paystubs. She only sends a recent January paystub. Over the course of 3 days and about 8 email, she finally admits: “He works a lot of OT and gets quarterly bonuses. He averages 100 hours per pay period and in the summer more. I’ll send a bunch more paystubs.” It’s been a week, and I still don’t know how much they make (gross or net). However, I’m betting that they are well above the median income, and they’ll have to be in some kind of chapter 13 repayment plan.

I begin by looking at your gross. I then take out normal, acceptable expenses. If you are “living large,” I cannot take that into account. When the US Trustee (Department of Justice) audits your case, they won’t allow me to deduct personal expenses like a $500 a month spa plan. That is not a reasonable expense, and it is an unfair detriment to your creditors (if you pay that $500 to the spa instead of your creditors). I know that it sounds unfair to the person who believes that the expense is reasonable, but there’s been enough litigation to prove that you can claim standard expenses, not luxury ones.

Self-employed client — If I’m dealing with a self-employed person, they will ask me the following question: “Are we talking about my business gross income, or the net after expenses?” If you are self-employed, then I use the gross as a starting point, but after we take out legitimate business expenses, it’s that net number that we’ll really be using.

Now remember that these numbers can be adjusted by child support payments (received or made), larger mortgages, huge tax debt, etc.  It is a gross overgeneralization to say that if you are over that figure then you MUST be a chapter 13, but this is the baseline we start with.  That being said, here are the current figures for Salt Lake County that we use on our Form 122 (6 month average of current monthly income and disposable income):

Single:      $63,653

Married:    $67,778

Married with 1 child:   $81,1672

Married with 2 children:  $91,810

Married with 3 children:  $100,810

Married with 4 children:  $109,810

Married with 5 children:  $118,810

Married with 6 children:  $127,810

Married with 7 children:  $136,810

Married with 8 children:  $145,810

Married with 9 children:  $154,810

Married with 10 children:  $163,810

If you have more than 10 children, you’re probably going to be below median.  I have 11 children, and I know how expensive that can be.