A bankruptcy discharge gets rid of a debtor’s personal liability. But the general rule is liens still survive a bankruptcy discharge. Normally a recorded judgment impairs your ability to sell or take out a loan on your house. However, if you file bankruptcy, a debtor can use Section 522(f) of the Bankruptcy Code to avoid a judgment lien.
Understanding Section 522(f) to Avoid a Judgment Lien.
Section 522(f) empowers debtors to avoid certain judicial liens on their exempt property. A judicial lien typically arises when a creditor obtains a court judgment against a debtor and records it with the County recorder’s office. This causes a placement of a non-consensual lien on the debtor’s exempt homestead. However, Section 522(f) provides a mechanism for debtors to challenge and potentially eliminate these liens, safeguarding their assets from liquidation.
Judgment Liens Impair Exemptions.
The first thing is to determine whether a creditor has received and recorded a judgment. An Arizona bankruptcy attorney can search the recorded and judicial records to determine this. However, it is incumbent on the debtor to inform the attorney if a creditor has filed any lawsuit.
Section 522(f) is triggered when a judicial lien impairs an exemption to which the debtor is entitled. Exemptions are legal provisions that allow debtors to retain specific types and amounts of property during bankruptcy. A good Arizona bankruptcy attorney will make sure that a debtor asserts the proper exemptions. The homestead exemption is a common area of concern for debtors facing judgment liens. If a judicial lien jeopardizes the homestead, an Arizona bankruptcy attorney can invoke Section 522(f) to release and avoid the judgment lien.
Filing a Motion to Avoid a Judgment Lien.
Debtors seeking to utilize Section 522(f) must file a motion with the bankruptcy court specifically requesting the avoidance of the judicial lien. This motion should detail how the lien impairs exemptions and provide a compelling legal argument for its avoidance. This involves additional work above and beyond the normal administrative bankruptcy case. As such, a good Arizona bankruptcy lawyer will usually charge extra for this service.
The timing of the motion is crucial. Debtors must file the motion before the court closes the bankruptcy case. Otherwise, a debtor will have to pay to reopen the bankruptcy case. Therefore, it’s essential to be proactive in addressing potential judgment liens.
Conclusion
Section 522(f) of the Bankruptcy Code serves as a valuable tool for debtors looking to protect their assets from judgment liens that could jeopardize their exemptions. By understanding the key elements of Section 522(f), including the impairment of exemptions, the applicability to various types of property, and the importance of timely motion filing, debtors can navigate the bankruptcy process more strategically. Consulting with an experienced bankruptcy attorney is highly recommended to ensure that Section 522(f) is utilized effectively to safeguard your financial interests during these challenging times.