Mistakes to Avoid–Prevent Judgment Liens against Your Home
Sept. 4, 2015
Don’t let a creditor get a judgment against you. File a bankruptcy case before that can happen.
It’s All Too Easy for a Creditor to Get a Judgment against You
If you are seriously behind on payments to a creditor, you can end up with a court judgment against you and a judgment lien against your home even if you act with what seems like common sense.
Let’s say you’ve fallen behind on a debt because you simply didn’t have the money to pay it. You get some papers in the mail or handed to you saying that you are being sued and that you need to pay the entire balance. You don’t have the money to pay hardly anything and certainly not the full amount. You know you do owe the debt so you see no reason to dispute that you do. So you don’t see any point to paying an attorney to fight the lawsuit. And you don’t see any good coming from contacting the creditor’s attorney yourself or to trying to file any kind of response to the lawsuit.
Then when you don’t do anything by the deadline stated on the papers, a judgment is entered against you. You may well not even know that it’s happened because often you’re not told.
So what? A judgment is just a court document saying you owe the money the creditor says you owe, right?
A Judgment Means a Judgment Lien on Your Home and Any Other Real Estate
A judgment is much more than that. First, it entitles the creditor to take a set of actions against you, your income, and your assets, such as to garnish your wages and bank accounts, and to force you to go to court to answer questions about your income and assets.
Second, a judgment generally results in a judgment lien against any real estate that you own—including your home. Depending on local laws, the amount of the judgment, and other factors, such a judgment lien can result in the forced sale of your home to pay the judgment amount.
We’re focusing today on this second result of judgments, the judgment lien.
Does a Judgment Lien Mean Your Home Must Be Sold to Pay the Lien?
Again, that depends on various factors. In some states your home can’t be sold at all or only if the judgment is of at least a certain amount. But even if your home isn’t sold by the creditor to pay off the judgment lien, if you ever wanted to sell or refinance your home or other real estate, the lien would usually have to be paid off.
That could jeopardize the sale or refinance altogether—because you thought you had a certain amount of equity in your home but find out that you had less as a result of the judgment lien.
Or even if the sale or refinance could still go through in spite of the judgment lien, paying off that judgment lien would reduce the money that would otherwise come to you, or that would pay other liens you really wanted to be paid (such as income tax or child support liens).
The Judgment Lien Can Attach to Your Real Estate Anywhere
Even if you do not own any real estate in the county or state where you were sued, but do somewhere else, the creditor can likely transfer the judgment to wherever your real estate is located. Then the creditor can force payment of the judgment amount through whatever means permitted by the local laws of wherever the real estate is located.
So no matter where you own real estate—your home or any other kind of real estate—a judgment anywhere would likely turn into a judgment lien attached to that real estate.
This Can Hurt You Even If You Don’t Own Any Real Estate
You may figure this this is no problem for you because you don’t own a home, and certainly no other real estate. But be careful. If a parent or grandparent dies, and you and your siblings inherit some real estate, a judgment lien could immediately attach to your share in that real estate. Or if you get married to someone with real estate (including such a partial share), a judgment lien could unexpectedly attach to it.
Preventing a Judgment Lien from Attaching to Your Real Estate
If you are sued by a creditor your filing of a bankruptcy case before your deadline to respond, that will stop the lawsuit before a judgment is entered. Then the creditor cannot continue the lawsuit or enter a judgment without the bankruptcy court’s permission. Usually the creditor cannot get that permission. So no judgment is entered, and no judgment lien is created. Usually the debt that was the purpose of the lawsuit is discharged (legally written off) through the bankruptcy case, which ends the entire problem.
So, by filing bankruptcy you usually avoid having to pay any or at least most of the underlying debt. You avoid having to deal with the judgment lien if you try to sell or refinance the real estate. And you avoid the risk of losing your real estate from its forced sale upon enforcement of the judgment.