Remove a lien on your Rhode Island home through bankruptcy

Even though a judgment lien has already been attached to your home you can still have it removed through bankruptcy. Many Rhode Island homeowners that have been sued for unpaid credit card bills, car repossessions, medical bills and other debts could have judgment liens on their homes. If a creditor files a lawsuit against you and wins a judgment you will have a certain period of time to pay.  If that period goes by and you are unable to make other arrangements with the creditor they could try and garnish your wages or put a lien on any property you own. Most Rhode Island cities and towns have their land records online.  If a judgment lien has been filed on your property you will see it there. In Rhode Island you can still wipe out the debt and the judgment lien 

What is a judgment lien?

If a creditor sues you for unpaid debts and wins the case you will have a certain amount of time to pay them.  If you are unable to pay them they may start to garnish your wages.  If you own a home they can put a lien on your home for the unpaid debt.  They can put a lien on your home even if you have a mortgage or home equity loans.  They do this by filing the court judgment in the land records office where your home is located.  The lien will remain on file attached to your home until the debt is paid off.  If you sell your home the debt will be paid out of the sale proceeds along with any mortgages or home equity loans.

How to check if there is a lien on your home

To check and see if their is a lien on your Rhode Island home you will have to go to the land records office in the town where your home is located or their land records website if they keep the records online.  Some cities and towns in Rhode Island keep their records online and others do not.  You will have to search the records for your property and then read the documents attached.  You will see your deed and any mortgages you have one and possibly other things.  If you see the court judgment attached to your deed then you have a lien attached to that property.

Remove a lien on your home with bankruptcy

 If you do have a lien on your home you might be able to wipe it out through bankruptcy.  Not all liens on homes can be wiped out through bankruptcy though.  Certain conditions must be met for the lien to be removed and a you must also file a motion in addition to all of the other court documents you must file.  But if you are entitled to use the Rhode Island bankruptcy exemptions including the generous homestead exemption of $500,000 there is a great chance you can remove the lien through bankruptcy.

How to remove a lien on your home with bankruptcy

If you qualify for a Chapter 7 bankruptcy you might be able to remove a lien on your home.  To remove a lien through bankruptcy you will have to do a few things.  You must claim the property as exempt in Schedule C and file a separate motion to have the lien removed.  To remove a lien you must show the following in your motion:

• The real estate to which the judgment lien attached has to be your “homestead.”  That means you qualify for and claim a homestead exemption on that real estate.  
• The lien being removed has to be from a judgment entered against you in a lawsuit.
• The “judicial lien” can’t be related to child or spousal support or a mortgage foreclosure.
• The lien has to “impair” your homestead exemption.  This means that the lien would result in a loss of some or all of your exempt equity if the property were sold.

The lien must impair your homestead exemption

The U.S. Bankruptcy Code has a test to determine whether a lien impairs your homestead exemption.  To see if it impairs your homestead exemption you do the following:

• Take the value of all the liens on the house that are ahead of the judgment lien being wiped out like a mortgage.
• Add that amount to the amount of the judgment lien.
• Add their sum to the amount of the homestead exemption that you are entitled to.
• If the sum of all 3 is greater than the value of your house the judgment lien will be considered to impair your homestead exemption and will be “avoided” or removed

For example.  Let’s say that you live in Rhode Island and are entitled to a homestead exemption of $500,000 and your home is worth $400,000.  You have a mortgage with a balance of $100,000 and a creditor has recorded a judgment lien in the amount of $20,000 against your home (after the date of the mortgage loan).  Using the bankruptcy code’s test: 

1. Adding together the outstanding mortgage of $100,000 and the $20,000 lien you get $120,000.
2. Then add the homestead exemption of $500,000.
3. If that total $620,000 exceeds the $400,000 value of the home then the entire lien will be wiped out.

Lien avoidance is allowed in both Chapter 7 and 13 bankruptcy cases

Judgment lien “avoidance” is allowed in both Chapter 7 and Chapter 13 bankruptcy cases.  In a Chapter 7 case the judgment can be removed and the debt will be discharged along with the debtor’s other non-priority unsecured debts like credit card debt and medical bills.  In a Chapter 13 the avoided lien debt amount is added to the rest of the “general unsecured” debts.  Over the course of the 3-to-5-year Chapter 13 payment plan, you pay the pool of all your “general unsecured” debts as much as you can afford to pay, but only after paying other higher priority debts in full. This means that the avoided judgment lien debt amount is usually paid only pennies on the dollar and sometimes nothing.  Often, adding the avoided debt amount to that pool of “general unsecured” debts does not at all increase the total amount you need to pay to finish your Chapter 13 case. That’s because the same amount you pay into the pool is just redistributed among those creditors.  At the end of the Chapter 13 case whatever part of the avoided judgment lien debt amount has not been paid gets forever discharged.

Reopen your bankruptcy case to remove a lien

If your bankruptcy case is closed before you file a motion to have the lien removed it will remain in place.  When you go to sell the home you will then have to pay the lien from the sale proceeds.  You can file a motion to have the court reopen your case but this will cost more time and money and there is no guarantee that court will allow you to reopen your case.