When a creditor successfully sues you, obtains a judgment against you, and then registers a lien upon your property, this is called a judgment lien. Under certain conditions, judgment liens might be removed from your credit report when you file forĀ  chapter 7 Business Bankruptcy protection.

What Does It Mean To Have A Judgment Lien?

When a money judgment is made against you, any property that you hold at the time of the judgment will be susceptible to a judgment lien. To satisfy the judgment, the judgment creditor does have the legal authority to take and sell any property that you own.

Staying Safe From Judgment Attachments

Lien avoidance is the procedure by which judgment liens can be removed from your property in a Chapter 7 bankruptcy. The following three requirements must be accomplished to avoid a judgment lien:

  • A money judgment from the court is the source of the lien. There must be a judgment in favor of the creditor who filed suit against you for the lien to exist.
  • The property might be exempt from bankruptcy. Chapter 7 bankruptcy can exempt certain assets from the company’s debts.

Having a lien on your property would make your exemption invalid. You can get out from under a lien if it affects the amount of equity in your property that you could have exempted, and the exemption is impaired.

To Avoid A Lien, Even If Only Partially

If you are eligible for certain exemptions, you may be able to totally or partially avoid having a judgment lien put on your property. This depends on the type of exemption you are eligible for. The lien shall continue to be in force to the extent that you cannot exempt the property subject to the lien due to the property’s value.

The bank has a judgment lien on Andy’s automobile for $10,000. Andy took out a loan to pay for the automobile, and he still pays $5,000 on the car loan, which is a type of secured debt. This automobile is worth $20,000! There is a total of $5,000 in equity. Andy declares Chapter 7 bankruptcy and makes arrangements to settle his car debt while keeping the vehicle. With the judgment lien removed, the car would be worth $15,000. Andy can exclude $7,000 of the equity from his taxable income, leaving $8,000. Andy will now only be responsible for repaying $8,000 of the judgment lien.

Tips For Protecting Your Assets From Judgment Attachments

Include any secured liabilities, including judgment liens, on your Chapter 7 Statement of Intention, as well as tell the court whether you want to repay the debts and keep the assets subject to the liens or whether you intend to give up the property in return for a discharge of the debts. If you want to prevent the lien from being placed on your property, you can check the box on that form that says “property claimed as exempt.”

The next thing that needs to be done is to file a motion with the court requesting that the mortgage be taken away. If the court does not receive a response, it will most likely issue an order discharging the lien. If the creditor decides to reply, a hearing will be held so that you can present evidence that the lien should be removed. The judge will then make a final order that either removes the lien or keeps it in place, depending on which option the judge chooses.

The lien will be eliminated permanently when you receive a court order. Once your bankruptcy case has been concluded and discharged, the property will be entirely free of the judgment lien.

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