Can Filing Bankruptcy Save My House From A Lien?

This is part of an AVVO bankruptcy question I just answered.  bankruptHOUSE

Now, if your house looked like the one in this picture,

you probably would not care if you lost it filing bankruptcy.

So, I think the questioner has creditors chasing him.

Which is when folks begin to consider bankruptcy as an option.

How Does A Creditor Get A Lien On My House?

First, is it just your house?  In Michigan, a creditor can only lien an asset that is in the name of the debtor, the one it has a judgment against.  So only your interest can be liened, if the house is in your name and one or more other people, their interest is not affected.

And, creditors cannot just rush around putting liens on houses.

First, they have to have a judgment against you.

So, you have to be sued, served with the summons and complaint, and lose the case, have a court enter a judgment against you, and the appeal time run, before a lien can be placed.

That judgment lien is lower in priority than any mortgages or other liens already recorded.

Unpaid property taxes and water bills become liens on the real estate after a certain amount of time.

So, if the house is sold, liens are paid from proceeds in accordance with which one is first.

Except the government makes its liens first, automatically.

That is why mortgage companies pay property taxes, so the government does not sell the property out from under the mortgage.

How Does Filing Bankruptcy Affect A Lien On My House?

Filing bankruptcy has NO EFFECT on mortgage liens, or other consensual liens.

A consensual lien is one you agreed to, as opposed to a creditor putting a judgement lien on your house, which is something you do NOT want.

So, in a Chapter 7 bankruptcy, when you get the discharge your personal liability to pay the mortgage note is gone, BUT the lien survives, and the mortgage company can still foreclose if you do not pay, or do not pay the taxes or keep the home insured.

In Chapter 13, there is no discharge of mortgage debt, for the most part.  Check with an expert.

However, if there is a judgment lien on your home, that impairs an exemption, you CAN get that lien avoided in the Chapter 7 bankruptcy.

“Impairs” here means that if there were no lien, you could exempt that amount of equity from your creditors.

For example, home worth $100,000, $80,000 of mortgage debt, $10,000 judgment lien.

If there were no judgment lien, in Michigan you could exempt the $20,000 of home equity in a Chapter 7 bankruptcy case.

You can see, you need to consult an expert on these issues.

 

 

 

 

 

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