Using Bankruptcy to Remove a Judgement Lien

Continuing the discussion in my previous blog titled “Stopping a Creditor Lawsuit”; a judgment lien is one of the remedies that a creditor may have against you if you let the creditor receive a default judgment against you.  Let me give you a typical example of this using my client, Mary – name changed to protect anonymity.

Mary received a notice of a lawsuit filed against her by Capital One.  From the point Mary was served with the papers, she had 20 days to respond to the lawsuit.  Like so many people, Mary ignored the lawsuit – either out of fear or because she did not know where to turn.  Capital One received a default judgment against her.  At this point, Capital One had the power to garnish wages, put a lien against her home etc…  Mary was not working at this time, so Capital One put a lien against her home.  Now, beyond her first mortgage, Mary had a judgment lien against her home growing at a rate of 12% interest per year!  When Mary received notice of the judgment lien, she came to see me.  Fortunately, Mary was eligible to file a Chapter 7 and in the process we were able to remove the lien from her home.  Mary kept her home, the judgment lien was gone, and Mary only had to worry about the first mortgage.

But all of this could have gone wrong for Mary.  If Mary had had too much equity in the home, then the lien could not have been removed in a Chapter 7 and the lien would have remained against the home.  Mary’s only option at that point would have been to file a Chapter 13, remove what could be removed, and pay the remainder in full at 12% interest.  This would not have been an option for Mary because there is no way she could have afforded this.

The moral of Mary’s story and many others – especially when you own a home – is that if you are served with a lawsuit, you want to make arrangements as quickly as possible to deal with the lawsuit.  If you do not, then the possibility of a judgment hanging around increases.


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