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How Do You Strip a Judgment Lien in Bankruptcy?

How Do You Strip a Judgment Lien in Bankruptcy?

February 5, 2015

HOW DO YOU STRIP A JUDGMENT LIEN IN BANKRUPTCY?

A lot of times when a client first comes to me, they are coming to me as a last resort. They have already been sued and about to be garnished and there is a judgment lien on their real estate. Filing a bankruptcy would clear up all of their debts except for the exceptions stated in the bankruptcy. But what do you do with a judgment lien on your house? The creditor with the lien cannot collect on you personally anymore, but the creditor can still collect from the sale of your house. Does the Bankruptcy Code provide for any way to strip this judgment lien? The answer is yes.

A debtor can avoid a lien if it "impairs an exemption to which the debtor would have been entitled" per 11 USC 522(f). What does this mean? Let us look at an example.

If a debtor has a judgment lien on their homestead, the debtor is entitled to their homestead exemption of $132,900 in the State of Ohio. If the home is only valued at $100,000 and there is 1 dollar of lien on that home, then that judgment lien impairs the debtor's homestead exemption by one dollar. This entitles the Debtor to avoid this lien. This only applies to liens other than voluntary mortgages.

So how does the debtor proceed to avoid the lien? Well, the lien can be avoided in both a Chapter 7 bankruptcy and a Chapter 13 bankruptcy. In the Canton and Akron Bankruptcy courts, the debtor can file a motion with proper notice and the court will allow the debtor to strip the lien as long as the avoidance of the lien meets the requirements.

So if you are thinking about filing for bankruptcy to get out of your debt, keep in mind that bankruptcy will also avoid your judgment lien.

If you have any questions on this, feel free to contact Bates and Hausen, LLC. We have offices in Akron, Canton, New Philadelphia, and Wooster. We have over 51 years of combined experience in dealing with bankruptcy.

Submitted on 2/5/2015

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