How a Lien on Property Can Effect Your Bankruptcy

Posted on Oct 22, 2014 By J. Suzanne Shinn

Suzanne ShinnA question that comes up frequently during a bankruptcy process is: “How does a judgment lien taken against me before a bankruptcy case is filed affect me after my case has been discharged?” This question usually arises because a person may be concerned about future liens that may be reflected in a title search upon purchasing or refinancing real estate. It is advisable to anyone who is filing a bankruptcy petition and who owns property or is buying property, to go to their county courthouse and ask the clerk to search the property address(es) for any judgment liens recorded against the property. If there is a recorded lien (other than mortgage debt), then steps must be taken to remove the lien while the bankruptcy case is pending. Failure to do so may result in a cloud on the title and issues with selling the property free and clear of all liens and encumbrances in the future. Failure to remove a recorded judgment lien can also result in issues with refinancing the mortgage.

Some people, however, discover that even though they did not own or were not purchasing a home during the time that they filed bankruptcy, the process of purchasing property two or three (or more) years after their discharge is “frustrating” because the title company is leery of issuing a title binder if there was a judgment lien that was not “removed” during the bankruptcy case.

The entire essence of chapter 7 bankruptcy is to give someone a “fresh start”….an opportunity to begin their lives again with a clean slate. Most certainly, this had to be the mind set of even the first drafters of the bankruptcy code.

Since its inception, the idea of filing bankruptcy is patterned after Biblical history in order to provide, not only relief from debt and creditors right away, but also to allow someone the opportunity to go forward with their lives, obtain new credit, property….a new life. Thus the process bogs down when a title insurer refuses to issue a binder unless the lien is removed. Yet, if one does not own real property before the bankruptcy case is filed, the question then becomes, “To what does the lien attach?” And further, “If there is no property to which the lien attaches, how then does one go about removing the lien?”

Both bankruptcy law and Alabama law hold that a lien under Alabama law does not become a lien on property that is acquired after filing a bankruptcy petition wherein one receives a discharge of any and all debts and liens. In essence, the debt is “released” by the bankruptcy discharge. In fact, if there is no property (owned or buying) for the lien to attach to, how then would a specific order be entered releasing the lien against the property (which would have to be specifically described within the motion to avoid the lien). A bankruptcy Judge would never sign a specific order removing a judgment lien against property that the petitioner might acquire at some point in time in the future. The discharge order stands on its own merits to releases all judgment debts against a person that has no real property at the time the case is filed.

 

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