How are judgment liens affected by bankruptcy?

UPDATED: Jul 13, 2023Fact Checked

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Jeffrey Johnson

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 13, 2023

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UPDATED: Jul 13, 2023Fact Checked

Property owners with a judgment against them or heavy debt to creditors often filing bankruptcy protection, or in some cases, are subject to an involuntary filing. Bankruptcy can help offer relief from obligations acquired in the years leading up to the bankruptcy filing, through what is known as a debt discharge. This process is governed by the Bankruptcy Code and what debts and personal liabilities can be discharged depend on the chapter filed, the state in which it is filed and the specific situation.

Under the Bankruptcy Code, in most cases, pre-bankruptcy judgments can be discharged in a filing. As soon as the bankruptcy is underway, all current or pending lawsuits are immediatley halted by the automatic stay. Read about automatic stays here. Even if a judgment is filed right before a debtor is going into bankruptcy, the judgment will not have to be paid right away and there will likely be time to get the filing going before having to pay; and once the bankruptcy is being filed, judgments are voided.

If a judgment lien for wages or a home are placed while a bankruptcy is in the filing process, a request can still be filed to discharge the lien. Although it generally does not happen, creditors can object to this request; but a bankruptcy judge will usually grant the motion to remove the lien. The most common exception to this rule is when a bankruptcy debtor has a significant amount of equity in their home, they may not be able to avoid the lien as the trustee may decide to pay the judgment using this equity.

In addition, if a debtor is worried that a judgment may be placed after the bankruptcy is filed and they may be forced to pay, they can take solace in the fact that a judgment only becomes a lien when it is secured to real estate; and a judgment cannot be placed on this type of property after the bankruptcy is filed.

Judgment liens that exist before filing bankruptcy generally survive the discharge issued by the bankruptcy court. If the lien only attached recently, you may be able to have it set aside, but the general rule is that bankruptcy extinguishes debts but not liens. If a judgment creditor takes a judgment lien against your property, you should contact a bankruptcy attorney as soon as possible because you can generally only have the lien set aside if it attached within 90 days before you filed your bankruptcy case. If the creditor has a general judgment lien on file with a court or register of deeds, that lien will not attach to property that you acquire after your bankruptcy as long as the underlying debt was discharged in the bankruptcy. This is so even if the lien did attach to other property that you had before you filed.

Case Studies: How Judgment Liens Are Affected by Bankruptcy

Case Study 1: John’s Bankruptcy Filing and Discharge

John, a property owner with a significant amount of debt, decided to file for bankruptcy protection. He had a judgment lien against his home, which caused him concern about losing his property. However, upon filing for bankruptcy, the automatic stay went into effect, halting any pending lawsuits and providing John with some relief.

The judgment lien against his home was also voided, ensuring that he wouldn’t have to pay it immediately. This case highlights how bankruptcy can help discharge judgments and protect property.

Case Study 2: Jane’s Request to Discharge a Judgment Lien

Jane, another debtor facing a judgment lien, filed for bankruptcy while the lien was being placed on her wages. Worried about the impact on her financial situation, she decided to request the discharge of the judgment lien. Although creditors can object to such requests, a bankruptcy judge usually grants the motion to remove the lien.

However, if a debtor has substantial equity in their home, the trustee may decide to utilize that equity to pay off the judgment. This case demonstrates how debtors can seek the removal of judgment liens during the bankruptcy process.

Case Study 3: Tom’s Post-Bankruptcy Protection

Tom, who recently filed for bankruptcy, was concerned about potential judgments being placed on his property after the filing. Fortunately, he learned that judgments can only become liens when they are secured to real estate. Once the bankruptcy is filed, no new judgment liens can be placed on this type of property. This provided Tom with peace of mind, knowing that his property would be protected from future judgments.

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Jeffrey Johnson

Insurance Lawyer

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Insurance Lawyer

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

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