Judgment liens: How Chapter 7 bankruptcy can set you free from them

Do you know what a judgment lien exactly means? No? Then you may read along to find out about that and how Chapter 7 bankruptcy can rescue your assets from it.

Primarily, a judgment lien is a kind of nonconsensual lien. In other words, it’s a kind of a lien that is slapped on your assets without your consent. Judgment liens basically come into effect when a plaintiff has won a lawsuit filed against you and then the court’s judgment is recorded on your property.

Judgment liens – Their origin

Any judgment lien can be placed on your assets, provided a person has won a lawsuit against you. Actually, if someone sues you in a court of law and the court pronounces a judgment (i.e., a money judgment) subsequently in his or her favor, then he or she can use that judgment to attach your assets or properties to his or her name.

Once a lawsuit has been won, the plaintiff, i.e., the judgment creditor will have to get that recorded at the appropriate county or state. This rule is followed in many states in our country. In another instance, there are some selected states, where if a plaintiff wins a lawsuit against you, then a lien will automatically be generated and your real estate asset with eventually get attached within that same county. This prevents the judgment creditor to go through a fresh round of documentation as well as legal process to have the concerned judgment recorded in order to initiate a lien on your property.

Judgment liens – The types

There are three most popular kinds of judgment liens and they are as follows:

  • Judgment liens on cars – A plaintiff or the judgment creditor can have the court’s judgment recorded at your state or county’s motor vehicles department so as to put a judgment lien on your car or any other vehicle like truck, motorcycle, etc owned by you. A lot of times, people aren’t aware of a judgment lien being placed on their vehicles till the time they verify about the same with their local motor vehicles department. Or else, people also come to know about such a lien when their creditors file a proof of claim at the time of asking for a bankruptcy discharge from the court. The interest accrued is claimed to be as secured by the creditors during a typical bankruptcy hearing.
  • Judgment liens on personal assets – A lot of states, allows a judgment lien to be used to attach personal assets of the defendants for a given period of time. Here, personal assets are being referred to properties other than real estates. However, there are certain judgment collection techniques that must be followed by the judgment creditors. Interestingly, most of the personal assets aren’t recorded or turn out to be ineffective as most of them have no title, hence liens cannot be recorded against them. As a result, personal assets could be sold to a third party without the buyer’s knowledge that such an asset actually carries a lien.
  • Judgment liens on real estate – This is one of the most straightforward liens that would directly affect your real estate assets. But judgment liens will be effective, only if they’ve been recorded or the judgment entered in the county of where the real estate lies.

Judgment liens and their tussle with Chapter 7 bankruptcy

Secured debts can be divided into two major parts. Both these part, even though belong to the same parent debt, yet they are treated quite differently in Chapter 7 bankruptcy. Here’s how:

  1. First, in a typical Chapter 7 bankruptcy case, your personal liability toward the secured debt that makes it obligatory on your part to pay back your creditors gets affected. Usually bankruptcy can discharge only those debts that qualify for a probable discharge as included in the Bankruptcy Code. As a result, once you’ve been discharged of your obligation to pay off a certain debt, then a creditor cannot sue you later on or for that matter, harass you for payments.
  1. Second, your creditor’s legal claim, i.e., the lien or security interest over the collateral for the debt also gets altered. With the help of a lien, your creditor can repossess your assets or have them sold forcefully (if needed) in case you fail to pay back the loan. Similarly, you can be sued by your creditor in absence of collateral for the value one such collateral would have.

The bottom-line is, your lien would survive, even if you’ve been discharged of your debts by the competent bankruptcy court, or if you’ve sold off your property to a third party. But, you can work toward having your liens reduced or eliminated through Chapter 7 bankruptcy.

Judgment liens – How to avoid the

In order to avoid a judgment lien, you can file a separate petition for lien avoidance by citing the column “Property is claimed exempt” on your “Statement of Intention” along with a motion in its favor. Usually, Chapter 7 bankruptcy is used to diminish the adverse effects of liens but not to wipe them out in full.

Author Bio: Andy Masaki – I’m a 27-year-old freelance journalist living in Oakland. I work for Oak View Law Group, a leading consumer and bankruptcy law firm based in CA and operational across US. I’m a numbers geek who loves helping others to find the right balance between frugal finances and living life fully.


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