Having a lien placed on your home can be problematic in a couple of ways. Not only can the lien prevent you from selling your property, the creditor who placed it there can foreclose on your house, take possession of it, and sell it to repay the amount owed. One way to remove a lien is to file for chapter 7 bankruptcy. Here's how to make this option work for you.
Simply filing for and receiving a bankruptcy discharge is not enough to eliminate a lien from your home. The discharge only gets rid of your obligation to pay the debt. The lien itself will survive the process, leaving you in a slightly better position than you were to begin with. To remove the lien, you must file a Motion to Avoid Lien with the bankruptcy court and serve a copy of this motion to the party (or parties) that file it in the first place.
It's important to note that only judgment liens are eligible for this option, however. When a creditor sues you and obtains a judgment from the court, the person can use that judgment to file a lien against your home. This is called a judgment or judicial lien. All other liens, such as those where the home was used as collateral to secure a loan, are not eligible.
Additionally, the lien must interfere with your bankruptcy exemptions in some way. For instance, the federal homestead exemption is $23,675. If the lien cuts into the equity in your home so much that you wouldn't be able to collect the full amount of the exemption if the home were sold, the bankruptcy court will typically strip it from the house, leaving the property free and clear.
Other Eligibility Requirements
There are a couple of other requirements that must be met before the court will approve your motion and remove the lien from your home. The house that has the lien attached must be your primary residence and it must qualify for the homestead exemption. Additionally, the lien can't be for alimony or child support (neither of which can be discharged in bankruptcy) or because of a mortgage foreclosure.
If your case doesn't qualify for lien stripping, the other option is to file for chapter 13 bankruptcy and pay the debt off. Your home will be under the protection of the automatic stay while your chapter 13 case is active, which will prevent the creditor from foreclosing on your home while you pay off the amount owed.
For more information about using bankruptcy to get rid of liens or help with your case, contact an attorney.