Posted on June 06, 2016 in Secured Debts

Bankruptcy cannot remove contractor’s liens or other statutory liens from your home, but both Chapter 7 and 13 can help you deal with them.

A bankruptcy “discharge” legally and permanently wipes out your personal liability for most debts.

But it doesn’t automatically remove liens from your home. Each different type of lien is dealt with differently in bankruptcy, so it can certainly be confusing. The blog posts of the past three weeks have been about these difference, regarding liens securing first and second mortgages, property taxes, income taxes and judgments.

Today we’re talking about a category that does not get much attention on bankruptcy lawyer’s websites, “statutory liens.”

What’s a “Statutory Lien”?

The Bankruptcy Code defines a statutory lien as a lien “arising solely by force of a statute.” See Section 101(53).

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 Posted on June 03, 2016 in Creditor Lawsuits

The potential ability to get rid of judgment liens from your home’s title is an impressive benefit of bankruptcy.

Our last blog post was about preventing a creditor from getting a judgment against you, and from getting a judgment lien on your home. Today’s is about erasing a judgment lien from your home after it has already attached.

It’s important: because of how much damage a judgment lien can cause, you can greatly help yourself by filing a bankruptcy case either to stop a judgment lien from attaching to your home or to erase one that has attached earlier.

The Damage Caused by a Judgment Lien

A judgment lien can turn a debt you owe that is unsecured—does not legally attach to anything you own—into a secured debt—secured by what you own, such as your home. So the existence of a judgment lien can take a debt that you can discharge—fully and permanently write off in bankruptcy—into a debt that you must pay in full. And until it is paid, it can haunt you and your home for many years.

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 Posted on June 01, 2016 in Creditor Lawsuits

Letting a creditor get a judgment against you is dangerous, for a lot of reasons. One of the biggest dangers is a judgment lien on your home.

We just finished a series of 4 blog posts about income tax liens. The first one was about how much better things can be for you if you prevent a tax lien from being recorded against your home by filing a bankruptcy case before that happens.

It’s a similar situation with creditor judgments and the judgment liens they create against your home. You can prevent them from happening and can really help yourself if you do so.

Creditor Judgments Happen Quickly

Let’s get really practical. It’s all too easy to get a judgment against you and a judgment lien against your home.

If you get behind on payments to a creditor, that creditor usually has a right to sue you pretty much right away. Some creditors do. But often they don’t, instead sending your account to a collection agency. And then it’s often sent to a second or third collector until it’s hard to keep track of who is collecting for what. Then when you’re not expecting it—sometimes even years later—you get a lawsuit in the mail or handed to you by a process server.

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 Posted on May 30, 2016 in Income Taxes

A tax lien fully encumbered by the equity in your home is dangerous. Chapter 13 may be your best option.

Today we finish a short series of blog posts on income tax liens recorded against your home. Last time we explained how to use Chapter 13 “adjustment of debts” to get the release of a tax lien when there is SOME equity in your home to secure the tax debt. The time before we got into what happens when there’s NO equity in your home to which the tax lien can attach. Today is about tax liens that secure the entire tax debt because the amount of home equity is enough to cover the ENTIRE tax.

Scenarios

To make better sense of this, here are three scenarios to illustrate the three above situations.

All of them involve a homeowner who owns a home worth $190,000 while owing an income tax debt of $20,000. Assume that this tax debt meets the conditions for “discharge”—legal write-off in bankruptcy. That usually just means that the tax return for that income tax debt was due more than 3 years ago and the tax return was submitted to the IRS/state more than 2 year ago.

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 Posted on May 27, 2016 in Income Taxes

Chapter 13 forces the IRS/state to accept only partial payment on an income tax debt that is only partially secured by a tax lien.

We’re in a short series of blog posts on income tax liens recorded against your home. Last time we explained how to use Chapter 13 “adjustment of debts” to get the release of a tax lien when there is no equity in your home securing that tax lien. That happens when the mortgage(s), property taxes, and other prior liens soak up the whole value of the home.

But what if there is enough equity in the home to cover part of the tax lien but not all of it? That is, the prior liens soak up most of the home’s value but leave SOME equity for the tax lien but not enough to cover the full tax debt.

An Example

This situation will make much more sense with an example.

Take a home is worth $200,000, with a mortgage of $195,000, leaving equity of $5,000. This home equity is increasing over time as the neighborhood home values increase and the mortgage is paid down.

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 Posted on May 25, 2016 in Income Taxes

Once an income tax lien is recorded, Chapter 13 gives you a tool that may enable you to pay no more and yet get a release of that tax lien.

Our last blog post was about using bankruptcy to prevent the IRS or state income tax authority from recording a tax lien on your home. But what if a tax lien has already been recorded?

The Challenge of a Tax Lien

In our last blog we also focused on how bad it is for you if the IRS/state records a tax lien 1) on an income tax debt that could otherwise be discharged (legally written off) 2) against a home that has equity against which that tax lien can attach. Then the problem is that the tax can no longer be discharged since it’s now secured by your home.

But what if the home has no present equity for the tax lien to attach to?

Dealing with a Tax Lien with No Home Equity to Attach

Maybe the IRS/state didn’t know that there was no equity when it recorded the tax lien, or maybe it just didn’t care. A recorded tax lien is a matter of public record. It hurts your credit record and your ability to sell and refinance the home. It puts you under pressure to pay the underlying tax debt. The IRS and state know this and that lien hurts you regardless that your home may have no present equity.

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 Posted on May 23, 2016 in Income Taxes

The recording of an income tax lien turns your home into collateral on the tax you owe. Stop the IRS/state from getting that huge advantage.

Assume you owe an income tax debt of $20,000. Assume also that if you filed a bankruptcy case today that $20,000 would be “discharged”—legally written off—in bankruptcy since that tax meets the conditions for discharge. You would not have to pay a dime of this $20,000. Ever.

But now instead assume that you didn’t file bankruptcy today. Then tomorrow the IRS or state tax authority records a tax lien against your home on this $20,000 tax debt. This could mean that after that you could not discharge that debt at all but instead would have to pay it in full. Plus penalties and interest.

So, bankruptcy doesn’t just write off income taxes under the right circumstances. It prevents a debt that could be written off turning into one that can’t. And protects your home in the process.

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 Posted on May 20, 2016 in Mortgage

If your second (or third) mortgage is not backed by any equity in your home, you can “strip” that mortgage off your home’s title.

Our last two blog posts were about using Chapter 13 “adjustment of debts” as a practical way to catch up on late mortgage payments and property taxes. You always have to get current on property taxes and virtually always have to with your primary mortgage obligation. Chapter 13 gives you the time and protection to do this.

But if you have a second or third mortgage, you might not have to catch up at all. You may be able to “strip” that mortgage from your home. If so, you also won’t have to make the monthly payments going forward. And you would likely not have to pay any more into your 3 to 5-year Chapter 13 plan than if you didn’t have that second or third mortgage. Then at the end of the plan whatever is still owed on that mortgage would be forever written off.

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 Posted on May 16, 2016 in Mortgage

Chapter 13 gives you much more time to catch up on your unpaid mortgage payments. That can be reason enough choose this option.

Filing either a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts” one stops a pending home foreclosure. And they can both prevent one from begin started. Assuming you’re behind on your mortgage and want to keep your home, whether you should file under Chapter 7 or Chapter 13 depends on how far behind you are and how much help you need in catching up.

Protection through the “Automatic Stay”

Filing either a Chapter 7 or Chapter 13 case immediately imposes the “automatic stay” on your mortgage lender, and on all your other creditors. This is the federal law which stops and prevents (“stays”) virtually all collection actions against you or your property, including a home foreclosure.

Under Chapter 7 this “automatic stay” protection only lasts a short time, usually about three months or so. And the mortgage lender can even ask the bankruptcy court to cut short that protection.

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 Posted on May 13, 2016 in Mortgage

Chapter 7 usually lets you retain your home if you are current (or not too far behind) on your mortgage payments (& other home-based debts).

Whether you can keep your home when filing a Chapter 7 “straight bankruptcy” mostly depends on two questions: 1) Are you current or close to current on your mortgage and other debts against your home, and 2) Is the equity in your home protected by the applicable homestead exemption?

Today we focus on your mortgage. Upcoming blog posts will hit other possible kinds of liens against your home, and then the homestead exemption.

Chapter 7 in General

When it comes to your home, Chapter 7 is designed for more straightforward situations with your mortgage and other home-related debts.

Under Chapter 7 if you want to you can generally keep possession of the collateral that is securing any of your debts. You just need to be current or at least close to current on that secured debt.

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