In our last blog we covered “junior mortgage lien stripping,” emphasizing that it’s only available by filing a Chapter 13 case, NOT Chapter 7. But THIS blog covers another very important tool for saving your home which can work in BOTH Chapter 7 and 13: “judgment lien avoidance.” Here’s how this one works.
If a creditor files a lawsuit against you and gets a judgment, that judgment usually attaches to your home as an involuntary lien against your home’s title, a judgment lien. If you sold or refinanced your home, that judgment would have to be paid in full, usually along with continuously accruing interest plus the creditor’s costs of litigation.
The key to avoiding a judgment lien is the homestead exemption. This exemption is a right granted to you by the state to protect a certain amount of equity in your home from your creditors. Different states’ homestead exemption laws protect different amounts of home equity. In Oregon, you can protect $40,000 of equity in a home owned by a single person, $50,000 of equity in a home owned by a husband and wife. You can only avoid judgment liens on real estate that is your homestead, generally speaking, your “actual abode.”
Whether a judgment lien can be avoided depends on a bunch of numbers: #1) the value of the real estate, #2) the total amount of the liens on this real estate which are legally superior to the judgment lien—generally the outstanding property taxes, the mortgage(s) or trust deed(s), and sometimes other earlier tax or judgment liens, #3) the amount of the applicable homestead exemption (usually $40,000 or $50,000), and #4) the amount of the judgment lien.
The entire judgment lien can be “avoided”—erased off the title—if that lien “impairs,” or cuts into, your homestead exemption. That is, if after subtracting the superior liens (#2) from the value of the property (#1), the equity in the property to which the judgment lien (#4) would attach is less than the value of the homestead exemption (#3), then that entire judgment lien can be “avoided.”
Here’s an example to show how it works. Assume you are single, and have a judgment against you for $15,000:
$ 250,000 Value of Home
– $220,000 First (& only) Mortgage and any unpaid property tax
$ 30,000 Equity in home to which the judgment lien would attach.
Since this $30,000 equity in the property to which the $15,000 judgment lien would attach is less than the value of the applicable $40,000 homestead exemption, that entire judgment lien could be avoided through either Chapter 7 or Chapter 13.
“Judgment lien avoidance” takes a special procedure, and can be challenged by the judgment creditor on various grounds. Contact us so we can show you how to undo the advantage that the creditor got over you by getting a judgment on your home.
Portland Bankruptcy Law Group has the experience and knowledge to handle your case. Our bankruptcy lawyers are extremely familiar with and are well versed in all aspects of bankruptcy law. Contact us today!