Did you know liens on your home and property can be voided in bankruptcy? There are several ways you can get rid of liens in bankruptcy: avoiding them, redeeming your property or surrendering your property.
Sometimes you can remove a second mortgage in bankruptcy. In a Chapter 13 a debtor may strip away a second mortgage that has no equity. In my opinion, in all districts an attorney should both bring this as a motion and also place such language in any Chapter 13 bankruptcy plan to properly strip away a second mortgage. At the end of a plan you may want to also bring a motion to order that the mortgage is current. When there is no equity for the mortgage to attach, the debtor can have the mortgage released once the plan is complete.
If a creditor took property just prior to the bankruptcy, the preferential transfer can also be avoided by an individual if he can assert an exemption in a Chapter 7 522 (f) motion or in a Chapter 13 with a 1306 motion.
If you do not take steps to eliminate liens in bankruptcy, they survive intact and the creditor can take your property or force it’s sale. Even after a case is closed, most courts are liberal in reopening it for the debtor to file a motion to avoid a lien.
If you file bankruptcy don’t ignore a judgment lien. Judgment liens don’t automatically go away and you have to file a motion to remove judgment liens. This is done by filing a 522(f) motion and showing the court there is no equity in your property to pay the judgment lien. If there is no equity left to pay the judgment lien, the lien may be stripped in a Chapter 7 or Chapter 13. A property appraisal is often needed for this motion. The motion can be brought to strip a lien or “value” a lien in either a Chapter 7 or a Chapter 13. You may not even know that you have been sued and your home has been attached by a creditor. If you have been sued be sure to notify your attorney.
Income Tax Liens
Income tax liens must be handled differently since they are statutory and survive bankruptcy. Income tax liens attach to both personal and real property so it is essential to value assets at liquidation value. A Chapter 13 must pay secured and priority tax debts in full. If you overvalue the property secured by an IRS lien you raise your Chapter 13 payments. Tax liens normally self-release after 10 years. Here is the form to release an income tax lien. That is right – 10 years after the income taxes are due a federal IRS lien dissolves automatically due to the statute of limitations for tax liens. Often you only have to wait out the tax lien by entering a payment agreement.
Auto Redemption in Bankruptcy
Liens in bankruptcy can be a troublesome topic, especially when your car is on the line. If you owe more than the auto is worth you may be able to “cram down” the loan to what it is worth if it was used for business, if the loan wasn’t used for the initial purchase of the auto (i.e. a refinance), or the loan is over 910 days old. A “cram down” in a Chapter 13 separates the loan into two parts, a secured claim, and an unsecured claim. The secured value is paid to the creditor and the unsecured portion is charged off. In a Chapter 7, you can redeem the vehicle, and eliminate the car lien. In a redemption, a debtor immediately pays the creditor the secured value and keeps the car.