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Recent Blog Posts
Statutory Liens
Statutory liens on your home cannot be gotten rid of in bankruptcy like judgment liens often can. So it’s important to know what they are.
Statutory Liens Are Rare, Sort of
There’s a good chance you don’t have any statutory liens on your home. But you may.
- Has the IRS or your state recorded a tax lien against your home for unpaid income taxes?
- Have you had a dispute with a roofer or some other kind of building contractor resulting in a contractor’s or mechanic’s lien?
- Are you late on monthly dues or special assessments to your homeowner association, resulting in a lien against your condo?
These are the most common kinds of statutory liens on your home.
What Is a Statutory Lien?
The U.S. Bankruptcy Code says that “the term ‘statutory lien’ means [a] lien arising solely by force of a statute on specified circumstances or conditions.” (Section 101(53).) A statutory lien is essentially created automatically, by operation of a statute, without further action by a court.
The Bankruptcy Judge, U.S. Trustee, and Chapter 7 and 13 Trustees
Your bankruptcy case makes more sense if you know the roles of the people involved, including the judge and the various trustees.
The Bankruptcy Judge
A judge is assigned to each bankruptcy case. However, in both Chapter 7 and Chapter 13 cases you will not likely ever see him or her.
In a very straightforward Chapter 7 case, the judge actually has very little to do. He or she tends to get actively involved only if a dispute needs resolution.
In a Chapter 13 case, the judge is much more directly involved. The judge oversees the approval of your payment plan and resolves any disagreements about it. There are often other developments during the course of your case that the judge would need to adjudicate.
Bankruptcy judges are appointed to terms of 14 years. This is unlike regular federal district court judges who are appointed for life. Bankruptcy judges are technically just “judicial officers of the United States district court.”
Turning Friday the 13th Bad Luck into Good
Sometimes life simply dishes out some bad luck. A bad car accident. A serious illness. Bankruptcy turns these lemons of life into lemonade.
Here’s how bankruptcy can help in these two scenarios.
Bad Car Accident
On Friday the 13th you got into a two-vehicle accident. The evidence shows that it was your fault. You got pretty seriously injured, as did your passenger and the other driver. You don’t have nearly enough insurance coverage for all the claims being thrown at you.
The medical bills and lost wages of the other driver and your passenger add up to tens of thousands of dollars over your coverage limits.
The two vehicles also took out a traffic light and then crashed into a roadside business. The resulting damages amounted to tens of thousands of dollars more of uncovered liability.
You couldn’t work for two months because of your injuries, and that lost income was only partially compensated. So you fell behind on your credit card payments and other debts.
Execution Liens, Judgments on Nondischargeable Debts
Execution liens on your home are like judgment liens, “avoidable” in bankruptcy. But only if the underlying debt can be discharged.
The last three blog posts have been about judgment liens on your home. We explained the trouble they cause, how bankruptcy can often get rid of them, and gave examples of both. Today we mention a couple of important twists to round out this topic of judgment liens.
Judgment Liens and Execution Liens
We’ve talked about getting rid of judgment liens without saying anything about execution liens.
“Execution lien” is a less commonly heard term. It’s used more often in certain states.
An execution lien usually arises when a creditor sues you, gets a judgment (usually because you don’t respond to the summons), then the creditor gets a writ of execution in order to collect on the judgment, and finally records the execution wherever your deed is recorded.
A Sample Judgment Lien, Undone
Here’s an example showing why a judgment lien on your home is dangerous, and how bankruptcy can solve this problem.
The last two blog posts have been about judgment liens on a home: the trouble they cause and how bankruptcy gets rid of them.
Today we’ll give examples both of judgment lien trouble and of bankruptcy’s solution.
The Trouble Caused by a Judgment Lien
Brent and Sandra Taylor own a $290,000 home with a $250,000 mortgage. They have a lot of other debt. Besides the mortgage they owe mostly medical bills and credit cards—$80,000 and $55,000 of them, respectively, $135,000 altogether.
One collection agency collecting on $20,000 of the medical bills sued them six months ago. Brent and Sandra didn’t respond to the lawsuit. They figured they definitely owed those medical bills and so had no reason to respond or object. Plus they had nothing to offer in settlement, either as a lump sum or in monthly payments.
Undoing a Judgment Lien
Bankruptcy can do more than forever discharge your debts. It can undo some bad creditor actions, like a recorded judgment lien on your home.
If a creditor has sued and gotten a judgment against you, it likely now also has a judgment lien against your home. In our last blog post a couple of days ago, we got into how dangerous judgment liens can be. We also explained how you may have a judgment lien on your home and not even know it. Given how dangerous they can be, it’s good that bankruptcy often can destroy judgment liens.
The Benefits of Bankruptcy
Filing bankruptcy gives you four big benefits in dealing with creditor judgments and judgment liens. These benefits apply to both kinds of consumer bankruptcy—Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts.”
1. Filing bankruptcy stops the creditor from enforcing the judgment itself. It can’t start or continue garnishing your paychecks or using virtually any other methods of collecting the debt.
The Dangerous Judgment Lien
A judgment lien effectively converts a debt that was secured by nothing into one secured by your home.
Has a creditor sued you and gotten a judgment against you? If so, and you own a home, most likely there is now a judgment lien against your home.
The Dangerous Judgment Lien
What’s a lien? It attaches an asset you own to a debt you owe, and secures the debt with it.
A judgment lien, in most states, attaches your home to the amount you owe to the judgment-holding creditor. Usually without your consent, your home then secures that debt.
A judgment lien gives the creditor huge leverage to make you to pay the entire debt. Not only pay the debt, but also the creditor’s attorney fees, its other costs for getting the judgment against you, and its constantly accumulating interest.
Objecting to a Proof of Claim to Defeat a Creditor
If your liability dispute with your creditor spills into your Chapter 13 case, the bankruptcy court may be a good forum to fight it out.
Our last three blog posts were about objecting to a creditor’s proof of claim in a Chapter 13 case. Today we look at situations when this is the most important part of your case.
Bringing a Liability Dispute to the Bankruptcy Court
It’s not unusual that a dispute with a single creditor forces a person into bankruptcy. Often it’s just one otherwise ordinary creditor which is more aggressive than the others, suing you ahead of the others, and then garnishing your paycheck or bank account.
Sometimes it’s not just any extra-pushy creditor, but rather one that you’ve been fighting for quite a while. The fight you are having with that creditor may be the main reason why you filed bankruptcy.
Maybe you were in a serious vehicle accident, and did not have enough insurance coverage. You are being accused of causing the accident but don’t believe you were its primary cause. Because of major injuries to others you potentially owe hundreds of thousands of dollars.
Objecting to a Proof of Claim to Prevent Dismissal
If a creditor’s proof of claim is too large, you may need to object to it to avoid dismissal of your Chapter 13 case.
Our last blog post was about two situations when it’s worth objecting to a creditor’s proof of claim in a Chapter 13 “adjustment of debts” case. Today we present two more such situations.
Often the Creditors’ Proof of Claim Amounts Don’t Matter
Often, the amount of money you would pay under Chapter 13 towards your “general unsecured” debts is a fixed amount. It’s based on what you can afford to pay during your case, after paying off any “priority” and secured debts. Because there’s usually a fixed dollar amount that is spread among the “general unsecured” debts, shifts in the amount of such debts often do not affect how much you pay in your Chapter 13 plan. Since it makes no monetary difference to you, in these situations you usually don’t bother disputing the debt amounts.
When It's Worth Objecting to a Proof of Claim
If a creditor’s proof of claim on a “priority” or secured debt is too high, object to it to avoid paying too much in your Chapter 13 case.
Our last blog post was about circumstances when it’s NOT worth objecting to a creditor’s proof of claim. Often in a Chapter 13 “adjustment of debts” case the amount of money you pay towards all your “general unsecured” debts is a fixed amount. That amount could shift based on changes in your income and/or expenses. But in the end you pay a fixed amount to the pool of your “general unsecured” debts. The total amount of debts in that pool often does not affect how much you pay. So, since it makes no monetary difference to you, in these situations it’s not worth fighting with these creditors about how much you owe.
But there definitely are other situations when it IS worth objecting to a creditor’s proof of claim. The objectionable claim can directly affect how much you must pay into your Chapter 13 payment plan before you finish it. Examples when this can happen include situations in which the proof of claim is for a higher-than-expected “priority” debt, or a higher-than-expected secured debt.
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