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Monday, November 28, 2011

Removal of Judgment Liens in Bankruptcy

In many Chapter 7 bankruptcy cases where debtors are seeking to discharge their unsecured debts or Chapter 13 payment plan bankruptcy cases where debtors are paying only a portion or not any of their unsecured debt homeowners can remove existing judgment liens from their primary residences.  This lien avoidance under Section 522f of the Code allows homeowners to use their homestead exemption under Federal or State Law as necessary to obtain an order to record on the land records which effectively releases the judgment liens avoided by the order. This secured debt is therefore converted to unsecured debt just like credit card debt and can be discharged like other unsecured debt.  The fact a judgment by itself has been entered on a debt does not make it nondischargeable.  The usual formula to determine if a judgment lien can be avoided takes into consideration the value of the property and compares it against consensual liens like mortgages on the property together with the appropriate homestead exemption. If the total amount of the mortgage(s) plus the homestead exemption equal or exceed the value of the property the judgment liens can be avoided.  Therefore, in a Chapter 7 debtors can enhance their fresh start by not only discharging unsecured debt, but can remove judgment liens to increase their equity in their homes. In a Chapter 13 case the same is true contingent upon the successful completion of their Chapter 13 payment plan.


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