Find out how to fight liens that crop up after you file bankruptcy
Image source: AlbuquerqueBankruptcyLaw.com
For those deep in debt without the resources to service their debts, filing a Raleigh bankruptcy may be the best option to get a financial fresh start. Chapter 7 bankruptcy can clear out credit card bills, medical bills, most liens and other unsecured debts that are holding you back. It's your responsibility, when you meet with your North Carolina bankruptcy attorney, to list all of your creditors that have claims against you, but sometimes things fall through the cracks and you may leave something off.
After you file a Chapter 7, within just a couple of months, all your eligible debts, including liens, are discharged. But what happens if a judgment lien that was incurred before your bankruptcy crops up after? Do you have to pay the lien or should it have been discharged as part of your bankruptcy? If you forgot to list that creditor or lien in your bankruptcy petition, are you stuck with it for good? The answer is maybe or maybe not, but hopefully not. Here's what has to be considered...
When did the debt occur?
The debt must have occurred prior to your bankruptcy filing. Discharge is only for debts (including liens) that predate the filing date. The debt didn't have to be past due at this point, in default, collections or have a lawsuit filed requesting the lien.
How was the lien established?
The lien must be involuntary – meaning it must have been created against your wishes. For instance, a mortgage creates a voluntary lien. This cannot be discharged in bankruptcy unless you relinquish the property that it's attached to (i.e. foreclosure of your home). Also, as a general rule, statutory liens cannot be forgiven – these are liens created by a statute (i.e. law). This would be the case with a tax lien that would generally not be forgiven in a bankruptcy. Only liens that are judicial are forgiven (i.e. those created by a lawsuit against you).
What property is the lien attached to?
The property affected by the lien must be exempt in your bankruptcy filing. For instance, if a creditor sued you for a debt and placed a lien on your home and all of the equity in your home is exempt, the lien should be able to be discharged – even after the fact – if it's an involuntary judicial lien as described above.
How much of the lien is avoidable?
To find out how much of the lien can be avoided, you have to do a simple calculation. You have to go back to the date your bankruptcy case was filed and consider the value of your property, any voluntary liens on it and exemptions first. For instance, if your home was worth $160,000 and your mortgage is $125,000, this means you have $35,000 in equity.
In North Carolina, $35,000 in equity in your home can be protected, so the lien would be discharged if it met the conditions listed above. If your equity was $40,000, this would leave $5,000 of equity unprotected by exemption and eligible for the lien to claim. However, if you are filing married for bankruptcy, up to $70,000 in equity can be protected. Essentially, any property that is not exempt can be absorbed by the lien.
How do you get rid of the lien?
You'll need to go back to your North Carolina bankruptcy attorney and they will request the court to reopen the case and discharge the lien. You'll usually have to pay a new filing fee to get the ball rolling but you may be able to get this refunded later. Liens like this usually crop up when you're ready to sell your home. Unfortunately, it takes 45-60 days to get your case reopened and get a court order to void the lien and this can cause problems with a home sale. To avoid any issues like this, do a public records search on yourself and your home to see if you have any liens attached to your property. That way you can be sure to list them when you file your bankruptcy.
If you are deep in debt and looking for a fresh start, contact the law offices of John T Orcutt to find out how a bankruptcy can get your finances back on track for good.