Lien Removal After Bankruptcy

As noted in my earlier note, there are three types of liens that can attach to your property.  After filing for bankruptcy and discharging a debt associated with the lien, you can remove the lien from the property under certain circumstances.  It depends on the type of lien and the value of the property. 

Consensual liens (mortgages and the like) can’t be removed unless they are paid.  Tax liens only go away if they are paid or if the taxing authority agrees to release them.  (IRS liens generally expire in ten years.) 

Judicial liens (put on property after a judgment) can be removed after the debt has been discharged if the lien interferes with a valid exemption.  Thus, if you have a house with $100,000 worth of equity and you are entitled to a homestead exemption in excess of $100,000 you can petition the court and have a judicial lien removed. 

This process works only when you have validly claimed the exemption in the bankruptcy proceeding and the underlying debt has been discharged.   The court will remove the lien as an impairment to your exemption. 

Interestingly enough, the court will use the value of your house at the time you filed for bankruptcy rather than a fair market value when you apply to have the lien removed.  This used to be a very good thing, when home values were going up.  Now, it can be a very different story with the falling housing market. 

Remember also, that most judgments expire after some number of years, depending on which state you live in.  Here, in California, they expire, unless renewed, after ten years.  A lien will expire with them and a discharged judgment can’t be renewed.  So, as the saying goes, “time heals all things.”  Consult a competent bankruptcy attorney in your area for the specifics.