Will Filing Bankruptcy Remove a Valid Lien?

The general answer is that bankruptcy filing, in and of itself, does not remove a valid lien. However, there are actions that can be taken before the court to remove a valid lien in some circumstances. For example, let’s say that a judgment creditor has filed a lien against a debtor’s home. That lien will remain despite the fact that the debt was technically discharged by the bankruptcy filing. This points out the difference between a debt and a lien. The debt is eliminated, however, the lien remains.

To remove the lien, there must be a motion brought before the bankruptcy judge to avoid the lien. The lien can only be avoided if it impairs one of debtor’s exemptions. As far as the home ownership exemption, in Illinois, a person can exempt up to $15,000.00 of equity in a home. If the lien impairs that exemption is may be removed either partially or in its entirety.

I have seen many cases where debtors were unaware that a lien was created. It is often not until the debtor seeks to sell the home that he first realizes the existence of the lien. In those cases, I must first seek leave to re-open the bankruptcy case and then file the appropriate motion to avoid judicial lien. Depending upon the equity in the home, the lien may be avoided.

The take-away point is this: Make sure that you have no judicial liens on your property when you consult with your bankruptcy attorney. It’s easy enough to check for liens by visiting the County Recorder where the property is located. By knowing this information, you can save yourself time and money down the road.

Aurora Bankruptcy Attorney David M. Siegel is located at 1700 N. Farnsworth Avenue, Aurora, IL and has office hours every Saturday morning.