Judgment Liens and Their Impact on Bankruptcy: Common Questions

Title companies, are well aware that many people selling their homes expect the title to come back clean after a search. It can be shocking to discover that the title is tarnished. However, depending upon the circumstances, this doesn’t necessarily mean that you will be unable to sell your home or be forced into foreclosure. Judgment liens operate a bit differently than mortgage liens as they are attached to your property without consent. Judgment liens can happen due to unsecured debts that are left unpaid. 

What is a judgment lien?

It can be easy to become consumed by debts you cannot pay. As a result, you may experience constant calls from creditors attempting to collect the debts they are owed. If they cannot settle the debt with the debtor, a creditor may take legal action by filing a lawsuit to collect the debt. If the creditor receives a favorable outcome, they may place a judgment lien on the property. Judgment liens can be placed on personal property, real estate, and even vehicles. 

Is there a way to have a judgment lien removed?

As a homeowner, you will want to remove the judgment lien, especially when trying to sell the property. To be released from the financial obligation, the debtor must fully settle their debts. A bankruptcy lawyer may be able to assist with the process of negotiating these debts so that the lien can be removed. 

How might a judgment lien impact the equity I have in my property?

A creditor may collect debts when the property owner sells or refinances their home. However, in some cases, when there is substantial equity in the property, they may ask the court to force the sale of your home. However, keep in mind this will vary depending upon the state you live in. Depending upon the homestead exemptions in your state, the equity in your property may be exempt. However, despite this, keep in mind that this is far less common. Because of exemptions and the property’s equity, forcing a sale isn’t always cost-effective for the creditor. 

Can I sell my property when there is a judgment lien?

It is possible to sell a home when there is a judgment lien. However, it’s essential to remember that the prospective buyer is not expecting the title search to unearth what can be perceived as a complication to the homebuying process. If you have a lien and are hoping to sell the property, it’s best to disclose this information to the buyer from the very start. A lawyer can be helpful when it comes to strategizing potential solutions, which could include negotiating a plan to pay the debts off, invalidating the lien, negotiating to debt down, or filing for bankruptcy.

When should I consider filing for bankruptcy?

If you have a judgment lien on your property, bankruptcy may be a possible solution. However, before moving forward with this option, it’s in your interest to carefully evaluate your specific situation with a lawyer and even a financial advisor. If there is absolutely no way to resolve your debts without filing for bankruptcy, bankruptcy may be the most appropriate step forward.