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Can I Reopen My Chapter 7 Bankruptcy Case To Avoid A Judgment Lien Recorded Against My Property?

Imagine trying to refinance or sell your residence years after receiving a discharge in a bankruptcy case. To your surprise you are informed by your mortgage or real estate broker that a judgment lien was recorded by an old creditor against your residence. Worse yet, you have been told that you must pay the entire interest accrued balance off prior to refinancing or through the sale of your residence.

How can this be? Bankruptcy Debtors are stunned to find that judgment liens are not automatically wiped out in bankruptcy. A Bankruptcy Discharge permanently bars creditors from proceeding against the individual debtors, it does not extinguish judgment liens that were perfected and recorded against a residence prior to the filing of a bankruptcy.

Fortunately, all is not lost. A Debtor may file a motion to reopen a case to avoid a previously recorded judgment lien. Once reopened, the Debtor must file a Motion to Avoid Judgment Lien under Title 11 U.S.C. §522(f) of the Bankruptcy Code. The burden of proof is on the Debtor to establish fair market value, validity / priority of pre-existing mortgage liens, and claimed exemptions as of the date of the bankruptcy filing. As such, the Debtor should obtain a historic appraisal of the residence and gather past mortgage statements (as of the date of the bankruptcy filing) as evidence of the value of the residence and pre-existing mortgage liens.

Once granted, a Certified Copy of the Order Granting Motion to Avoid Judgment Lien must be recorded in the County in which the residence is located. Some title insurance companies will request the Certified Copy of the Order be directly sent to them for proper recording, especially if the Debtor is in the midst of refinancing or selling his residence.

What if the residence has appreciated in value since the closing of the bankruptcy? No need to worry. Under Title 11 U.S.C 554(c) of the Bankruptcy Code, once a bankruptcy case is closed, all property not administered by the Bankruptcy Trustee, including a residence, is effectively abandoned by law. Simply stated, any appreciation in property value belongs to the Debtor.

Given the strict notice requirements and overall complexity of the laws governing these motions, past Bankruptcy Debtors who find themselves in this predicament should consult an experienced attorney before going forward with the avoidance of a judgment lien.