How to avoid Mortgages & Liens

Did you know you can avoid liens in bankruptcy if the facts of your case are right. Many attorneys fail to strip judicial, second mortgages or household goods liens on your home and property! Of course you have to ask and work together with your attorney to avoid these liens. Without a title exam the attorney may not know you have a judicial lien. You may have had a judicial lien placed on your property without your knowledge. There are several ways you can get rid of liens in bankruptcy by avoiding them, redeeming, lien stripping or cramming down liens.

How to Avoid Second Mortgages in Chapter 13

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. 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. Attorneys don’t do this automatically and it normally requires you complete the Chapter 13 plan payments. If the plan fails you go back to owing the entire second mortgage.

When there is no equity for the mortgage to attach to, the debtor can have the mortgage released once the Chapter 13 has completed.  By filing a motion with the plan it is much easier to simply get an order that the loan has been satisfied at the end of the case. The mortgage company may go out of business or otherwise not release the lien. By obtaining an order releasing the lien and making it part of the plan and order of confirmation the release of the second mortgage becomes more automatic.

How to time a lien avoidance or strip motion

If a creditor took property prior to the bankruptcy, the transfer can be avoided by an individual if you can assert an exemption in a Chapter 7 522 (f) motion or in a Chapter 13 with a 1306 motion.  Such transfers are avoidable transfers which can be reversed even if the debtor agreed to it.  If you do not take steps to eliminate liens in bankruptcy, they survive intact and a creditor can take your property or force it’s sale. Even after a case is closed, most courts are liberal in reopening a for the debtor to file a motion to avoid a judicial lien.   However if you are stripping a second mortgage you must file the motion with the plan.  Wait too long and you have lost the opportunity to strip it.  After the plan has been confirmed is generally too late.

How to strip Judgment Liens

Avoiding Liens Mortgages

Avoiding liens and mortgages

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 after the exemption and mortgage are applied the lien may be striped.  If it is not done during the case you may have to reopen it later and a greater expense.

A judgment lien may be stripped in a Chapter 7 or Chapter 13. An appraisal is often needed for this motion.  Creditors rarely defend these motions but it takes time, work and almost always a hearing.  The motion can be brought to strip a lien or to “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 so it can be stripped.

How to avoid, cure or release tax liens in Bankruptcy

Property and Income tax liens must be handled differently since they are statutory, non consensual and survive bankruptcy.  Income tax liens attach to both personal and real property.  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 may increase 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 Cramdowns and Redemption in Bankruptcy

Bankruptcy can never modify a residential first mortgage.  However a commercial property, vacation home or loan which finances the residential home and other property can be valued and separated into secured and unsecured claims. These valuations also apply to personal property like cars.  In a Chapter 11 you can have a sale of property however essentially forcing a short sale on a lender.

In a Chapter 13

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.  But this requires that

  1. it was used for business or
  2. the loan wasn’t used for the initial purchase of the auto (i.e. a refinance),
  3. 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

A Chapter 7 allows you the ability to redeem the vehicle or personal property.   In a redemption, a debtor immediately pays the creditor the secured value and keeps the car, boat or personal property.  You cannot redeem a home.   To avoid problems if you are filing a Chapter 13 view or download our Western Kentucky Chapter 13 Checklist.

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