Will bankruptcy remove a judgment lien from my property?

Usually, yes. But, let me explain.

First of all, there are all sorts of liens. Simply put, a lien is the right to take and hold or sell the property of a debtor as security or payment for a debt or duty. The property we’re talking about is real estate. There are two types of liens- consensual and nonconsensual. A consensual lien is one that you agree to, like a mortgage. A nonconsensual lien is one that you do not agree to, such as a judgment.

A judgment is the end result of a lawsuit. A judgment obtained against you attaches as a lien to real estate that you own in the county in which the judgment was obtained. So, if you own a parcel of real estate in Buncombe County, are sued in Buncombe County, and lose the lawsuit the parcel will be subject to a lien in favor of the party that sued you (the “Judgment Creditor”). The only exception is if you own the real estate with your spouse as “tenants by the entireties” and your spouse was not a party to the lawsuit. In that case, the judgment does not attach as a lien to your real estate. However, it will attach as a lien to any other real estate that you own, even if you own it jointly with another person who is not your spouse.

The judgment lien will have to be paid if you sell or transfer the property. It will also usually have to be paid if you refinance your existing mortgage. The lien will survive your death and have to be paid by your heirs if they intend to retain the property. Additionally, a Judgment Creditor can execute on its judgment and force the sale of your real estate to satisfy the debt you owe to it.

A bankruptcy can change this. The formula is a bit complex, but it essentially boils down to this: if you can claim your real estate as exempt in your bankruptcy case, then you can “avoid” (i.e., strip off) a judgment lien. For example, an individual in North Carolina can exempt up to $35,000 worth of equity in a residence. So, if Jane Doe owns a home worth $100,000, has a mortgage lien of $90,000 and a judgment lien of $20,000, then she can avoid the judgment lien. This is because, without the judgment lien she would have $10,000 in equity in her home (i.e., $100,000 value minus $90,000 mortgage). She can protect up to $35,000. So, she could claim her home as exempt. This means that she will be able to avoid/ strip off the judgment lien.

Lien avoidance in bankruptcy is a complicated and fascinating subject. Please feel free to contact Kight Law if you have been sued and are concerned about a judgment lien on your property.

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