How Will Filing for Bankruptcy Affect a Lien on My Home?

 Posted on November 22, 2022 in Bankruptcy

A lien on your home can be a major financial burden, especially if you have encountered financial difficulties and are struggling to make mortgage payments and repay other types of debts. If you are considering filing for bankruptcy, you may be wondering how this will affect any liens on your home. In some cases, you may be able to have liens removed, but in others, liens may remain in place after other debts are discharged, allowing creditors to take action to collect the amounts owed to them.

Understanding Different Types of Liens

A lien is a legal claim against your property. Since liens are placed on the property itself rather than applying to you personally, they are treated differently than other types of debts. How liens may be handled in a bankruptcy case will depend on the type of lien:

• Voluntary liens - When you take out a loan to purchase a home, you will agree to have a lien placed on the property. This will give the creditor the right to take possession of and sell the collateral if you default on the loan. If you choose to discharge your mortgage debts during bankruptcy, the lender will be able to proceed with a foreclosure and take possession of your home. However, if you cannot prevent a foreclosure, bankruptcy will allow you to discharge any deficiency judgment that a creditor may seek to collect if they are unable to sell the home for the full amount owed on the loan.

• Involuntary statutory liens - Some liens are created automatically by law, such as a tax lien, a child support lien, or a mechanic's lien. With these liens, creditors may not immediately seek repayment, but they will have the right to collect the amount owed if a home is sold in the future. These liens cannot be removed by bankruptcy and will remain in place even after other debts are discharged. However, bankruptcy may still be able to help you manage these obligations, including creating payment plans that allow you to satisfy your debts over time.

• Involuntary judgment liens - If a creditor has obtained a judgment against you by filing a lawsuit to collect unpaid debts, they may place a judgment lien on your home. In some cases, judgment liens may be "avoided" during the bankruptcy process. If these liens would affect your ability to claim an exemption in a Chapter 7 bankruptcy, you may file a motion to avoid the lien, and it may be removed from your home. Since debtors in Texas are allowed to claim an unlimited homestead exemption in most cases, you may be able to remove any judgment liens on your home during the bankruptcy process.

Contact Our New Braunfels Bankruptcy Lawyer for Liens

If you are considering filing for bankruptcy, and you have any liens on your home, it is important to understand how bankruptcy will affect those liens. Bankruptcy will not automatically remove liens from your property, but it may give you some options for dealing with them. At the Law Offices of Chance M. McGhee, our experienced Schertz bankruptcy attorney can help you determine the best approach to take in your specific situation, and we will make sure you take the correct steps to receive the debt relief you need. Contact us at 210-342-3400 for a free consultation.

Sources:

https://www.law.cornell.edu/uscode/text/11/522

https://www.rocketmortgage.com/learn/how-bankruptcy-affects-mortgages