Avoiding Judgment Liens in Bankruptcy
When creditors come after you, they often come after what literally is closest to home: Your own house. If creditors have sued you and haven't been paid, they can often successfully seek to put a lien on your home or other real property, encumbering it what is likely your biggest asset. Liens can keep you from being able to sell your property at all. Even if you can, it means you won't be able to recover its full value.
In a bankruptcy, some liens can be "avoided," meaning that the lien is stripped from your property, as if it never existed, and the debt that created the lien might be discharged. Lien avoidance is especially likely if the lien is attached to property that falls under an exemption, meaning that it is on a list that exists in federal, Ohio and Kentucky law of property, both tangible and financial, that cannot be considered during bankruptcy. An experienced bankruptcy attorney will review your property for exempt items, and determine what liens might be discharged during bankruptcy.
Bankruptcy Helps Avoid Judicial Liens
Like any other debt, a lien can weigh you down. Bankruptcy may be a way to get out from under that weight and live life anew. An experienced Ohio and Northern Kentucky lawyer can help you start as fresh as possible. The lawyers at Steiden Law Offices have represented people looking for a new financial beginning in Hamilton County, Boone County, Kenton County and throughout South Ohio and North Kentucky for more than 15 years. We have handled more than 6,000 cases, helping people get out from crushing debt. Call (855) 741-3328 or send an online message to set up a risk-free consultation.
Eric Steiden understands how difficult this time of your life is, and is dedicated to using his experience to help you navigate it. He has more than 17 years of experience. Our bankruptcy lawyers are able to serve clients throughout Hamilton County, with two offices in Cincinnati, and Northern Kentucky, including Boone and Kenton Counties, with offices in Florence and Covington.
How a Lien Attaches
A judicial lien happens after someone successfully sues you. It could be a creditor, suing you to collect on a debt, or it could be any plaintiff in a personal injury case or contract dispute. Once that creditor or plaintiff wins the lawsuit, they get a judgment for a certain amount of money. They then get a certificate of judgment from the court, which they then file with the clerk of court of common pleas in Ohio or with the county clerk in Kentucky.
The lien then automatically attaches to any real property you have in that county. When a lien attached to a property, it means that it becomes connected with it. Once the judgment lien is attached, you cannot sell the property without the proceeds then going to that creditor to the extent that you owe them. It effects your ability to sell the property — if the creditor's judgment is not satisfied, the lien remains on the property, a big turnoff for any potential buyer. Under both Kentucky and Ohio state law, judicial liens can only attach to real property.
This may sound similar to a mortgage, in that it's an encumbrance on the property. One importance difference between a judicial lien and a mortgage is that, in a mortgage, the property is offered as collateral. For property to have a judicial lien, however, you don't offer anything as collateral. It becomes the subject of the lien without your consent.
Exemptions in Bankruptcy
When you file bankruptcy under Chapter 7 of the bankruptcy code, the court appoints a trustee who may sell your assets to pay off creditors, called liquidation. When you file under Chapter 13, the court creates a payment plan to pay back your debts. As part of creating that plan, the court looks at all your assets and considers them when determining how much you can pay.
However, federal, Ohio and Kentucky law has a list of exemptions. Any property you own that falls under this exemption may not either be sold in a Chapter 7 bankruptcy or considered part of your assets when the court is developing a payment plan for a Chapter 13 filing. In Ohio, you may only choose exemptions from the list under Ohio state law. In Kentucky, however, you can choose either the list of exemptions under state law or federal law, but not both.
All three include exemptions for real property used as a residence, commonly called a homestead. Under federal law, you may exempt real property used as a residence for a value up to $21,625. Ohio has the same exemption law. Kentucky's value is lower —you can only exempt real property used a residence for a value up to $5,000. Under all three laws, there are also "wildcard" exemptions, in which you can exempt a certain amount of property, including real property, that does not fit under any of the exemptions: Up to $1,150 worth under Ohio and federal law, and up to $1,000 worth under Kentucky law. If you do not use the full amount of the exemption under federal law, you can use up to $10,825 on any other property, including real property. The exemption applies to the equity you own in the property.
Using an Exemption to Avoid a Lien
Typically, a lien is considered a part of your overall debt. The appointed trustee would seek to pay it off in bankruptcy like any other debt.
However, federal law, under 11 USC § 522(f), holds that an exemption basically trumps the lien. If a lien impairs property that falls under an exemption, that lien can be avoided, or stipped or voided, under this statute. The lien will only be stripped to the extent that it interferes with the exemption. For example, let's say you own $20,000 of equity in your home in Cincinnati, and there is a $10,000 judgment lien against it. Under Ohio law, the lien would interfere with the exemption, and the lien could therefore be avoided.
Steiden Law Offices | Covington Bankruptcy Attorneys
Lien avoidance is not automatic. It requires the debtor to file a motion during the proceedings. The bankruptcy attorneys for South Ohio and North Kentucky at Steiden Law Offices will diligently review your assets and determine what items might be eligible for an exemption, and which of those items have a lien. Call us today at (855) 741-3328 or send an online message to set up a risk-free consultation.