Reopen Your Chapter 7 Bankruptcy Case to Avoid a Previously Recorded Judgment Lien
by Richard Fonfrias,
J.D. Chicago’s Financial Rescue &
Fonfrias Law Group, LLC
Suppose you’re trying to sell or refinance your home many years after you received a discharge by the federal bankruptcy court. Then you discover that a judgment lien was filed by an old creditor against your home.
The title company or mortgage lender says that you must pay off the lien, plus all the accumulated interest that built up since the lien was filed before you can sell your home.
But wait. You thought that all debts and liens would be discharged in your Chapter 7 bankruptcy. But this isn’t true.
Yes, your bankruptcy discharge bars your creditors from collection efforts against you. But it does not automatically erase judgment liens that were recorded against your home before you filed for bankruptcy.
Here’s what you do: File a motion to reopen your Chapter 7 bankruptcy case to avoid the lien that was recorded against your home before your bankruptcy.
As the homeowner and debtor, you must prove (1) the fair market value of your home, (2) that the mortgage lien was placed on your property before you filed for bankruptcy, and (3) your exemptions as of the date your bankruptcy was filed. This means you must get an old appraisal of your home and compile your mortgage statements to show your home’s value and any mortgage liens pre-bankruptcy.
After the court grants your motion, you must record a certified copy of the order in the same county as your home. Title companies may ask that the Certified Copy of the Order be sent to them for recording.
If your home has increased in value since your bankruptcy, that appreciation belongs to you and you alone.
Because these laws are complicated, I strongly recommend that you contact an experienced bankruptcy lawyer to make sure the lien gets properly erased. You don’t want to make a mistake and discover again that you can’t sell your home until you pay off the lien and the interest.
As always, you’re invited to call me and discuss this and any other financial matters that concern you.