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Getting rid of judgments after a bankruptcy


LuckyLucy23
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I am a real estate agent and I am trying to work with a seller who wants to sell his home. The title company said they could not give clear title as he had too many judgments. He has about 6 of them which add up to over $90,000. From what I understand, in Florida, a judgment is an automatic lien against any real estate he owns. He is not looking to get any money back, he just wanted to avoid a foreclosure so he was trying to do a short sale.

Anyway, the title company said he should see a bankruptcy attorney and he did. He ended up filing bankruptcy and now that the bankruptcy has been discharged he is being told the judgments are still there?

He is now calling the companies trying to negotiate with them but they will not talk to him because of the bankruptcy. He went back to his attorney who said he can't help him anymore. The attorney said that judgments do not go away after a bankruptcy but they can't collect on the judgment either.

When does the judgment go away and is there anything he can do to get rid of them? This does not make any sense . . . why file bankruptcy if he still has judgments to deal with?

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If he filed BK solely to avoid the Judgements...that's a no-no. As he found out, Judgements don't go away after Bankruptcy. He got, and acted on, bad advice.

Judgements being attached to the home eh? So really, what's happening is either he needs to pay them off himself, or the new buyer can buy the house with teh liens attached...

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After BK most if not all judgements are voided per federal Law.

Now knowing these mortgage shyster's I imagine they try to leave them as it's too much trouble to do it themselves.

Never know they just might collect something

Therefore I imagine an attorney could get them comply fully with the law.

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Thanks for the quick response Amerikaner83. The house is only worth $170,000 so I don't know why a buyer would buy it with $90,000 in liens attached to it. I don't even know if he can sell it unless they are dealt with. That is the whole point of having a lien.

From what the title company told me they can't give a clear title on the property so that means the buyer can't get a loan. I don't understand why his attorney did not talk to him about this? Now he is worse off as he can't even negotiate with the companies as they are prohibited to talk to him about it because of the bankruptcy. He just wants to avoid a foreclosure as he has already taken a big hit on his credit.

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I met with a BK attorney who said that although getting a judgement removed is not automatic it would not be a problem to get it removed.

Not true?

I could be wrong, but I thought only BK7 wiped out Judgements...but not Tax, Student Loan, or Liens. If Judgements= liens in FL, then my understanding is that it wouldn't work.

But then again, I will be one of the first to tell you that BK law is NOT my strong point.

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The enforcement of a money judgment on a debt discharged in a Chapter 7 bankruptcy is limited to in rem remedies - that means, they can execute against property owned at the time of the filing of the bankruptcy case. If there was a pre-bankruptcy judgment, it attached to the house.

Post-discharge, the judgment creditor can't hold the debtor personally liable but can collect against the proceeds of sale of the house.

Liens that attach to assets that the debtor is entitled to claim as exempt can be avoided to the extent the lien impairs (or eats into) the value of the exemption in both Chapter 13 and Chapter 7.

To be avoidable, the lien must be a judicial lien (like a judgment or a garnishment), or a non possessory, nonpurchase money security interest in household goods or tools of the trade.

The only way around it is to reopen the bankruptcy case and file (if appropriate) a motion to avoid the lien. Debtor should go back to his or her bankruptcy lawyer for this to get done.

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I understand why a judgment would stay on property as the bankruptcy court doesn't know if the property is worth a lot of money and it would be a hardship to make him sell it just to do the bankruptcy as it could take months to sell. It makes sense.

In this case it is not worth anything as he currently has a mortgage for over $400,000 and it is worth around $200,000. I guess most people would just walk away and let the bank foreclose. Which brings up another issue. If the bank forecloses and his bankruptcy has been discharged . . . does that become a new debt? Hey thanks everyone. I am not sure what to do next but I have a better understanding.

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Did said person reaffirm the debt? If not, then the bank will foreclose, sell the property, kill off all the subordinate liens, and the person who did the BK 7 will be in the free and clear. If they did reaffirm the debt, then the debt has survived BK and hence, they will owe any difference between the sale price and the debt but the other liens will be removed and the person will not owe anything on those liens.

Personally, I think this lawyer who did this BK is a idiot. They should have known about the liens prior to filing BK and talked to the debtor on what they wanted to do. The lawyer should also be explaining this stuff, not lay people on the internet.

So my suggestion on what is next is dependent on whether the debtor can afford the house payments and if the reaffirmed the debt.

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Now, for a general comment, this is why trying to save the house in a BK 7 may not always be a good idea. If there are many liens on the home, it is better to let the bank take it. Especially now when so many people are underwater with their mortgages. The bank gets whatever the home was worth and the liens get extinguished. There is not much difference between a BK and a foreclosure on your CR so if both happen, big deal (same as bombing an area with a cruise missile after dropping a nuke).

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Guest usctrojanalum

Judgment liens against real property do not get discharged in BK, unless a special motion is made to avoid the lien. This does not always get done because it is not in the normal course of BK. A lot of BK attorneys will charge extra for this motion and the debtor will opt not to have it done.

Most of the time this is not an issue because the debtor outlives the length of the judicial liens (typically about 10 years)

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Wow, Thanks for the response from everyone. At least I have a better understanding. I only wish his attorney had talked to him about the judgments as that was the main reason he went to him in the first place. Who knows, perhaps he did. It is like when my husband goes to the doctor, I ask him what the doctor said and he can't remember.

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Reopen, have each lien removed, and then move on. It is quite easy to do, but it will cost $306 to reopen the case (courrt fee), plus a motion to reopen. Then a motion would be filed to strip each lien. Could get pricey, but the work would be repetitive by your attorney so maybe all liens could be stripped for less than $2000. Likely no appearance would be necessary, because creditors will have no plausible dispute regarding any possible equity.

Judgment liens ALWAYS survive bankruptcy, so anyone with property who has a judgment against them that isn't surrendering should strip the liens if possible (ie to the extent they impair debtor's exemptions).

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  • 4 months later...

My wife had a default JDB over a year ago and she is on title on our house, do they send a notice that there is a lien? i just got two default judgements on Friday of last week and my BK lawyer told me to ask the court for a stay of execution and they gave me 60days, so if we file in the next week or 2 will that quash any coming exections of judgement and keep them from putting a lein on our house? im filing chp 13.

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  • 2 months later...

New question on judgment.  I am currently 21 months into a Chapter 13 BK.  All payments have been prompt.  I applied for an FHA loan on house and when my credit report was pulled it showed a judgment.  The judgment creditor was listed in Schedule F of the BK and did not file a claim.  This was for unsecured debt.  It's looking like HUD is going to deny my loan because the judgment wasn't satisfied, paid, or vacated.  Yet HUD's own rules state they can loan to someone in a Chapter 13 bankruptcy as long as they have paid promptly for at least a year and have permission from the court (which I have).  My debt to income ratio is fine.

 

How to I solve this conundrum?

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It's looking like HUD is going to deny my loan because the judgment wasn't satisfied, paid, or vacated.  Yet HUD's own rules state they can loan to someone in a Chapter 13 bankruptcy as long as they have paid promptly for at least a year and have permission from the court (which I have).  My debt to income ratio is fine.How to I solve this conundrum?

Simple. 

 

The problem is not the credit report.  It is the recording of the judgment at the county recorder's office.  It is the recording that came up when the title company did its "bring down" report.  The recorded judgment is a lien against the property.  HUD is worried that if it loans the $$ it will sit behind the judgment lien. 

 

I assume this is your homestead residence.  File a Motion to avoid the judgment lien under 11 USC 522(f) since it impairs the homestead exemption.  Once the Motion is granted get a Certified Copy of the Order and take it to the title company.  Problem solved.  If you do not have an attny, find one, as doing this Motion by yourself is just asking to screw it up.

 

Des.

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  • 1 month later...
  • 2 weeks later...

I believe that there is a three question "test on whether the judgment can get removed:

 

  • Did the judgment come about as a result of a court ordered lien?
  • Are you eligible to claim an equity exemption in the home?
  • If the property were sold would that result in an impairment in the amount of the equity exemption?

 

Poster are correct in that it is not a normal filing with the Trustee, therefore a BK attorney may charge you for filing it.

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  • 4 weeks later...

General rule: debts are discharged, lien survive bankruptcy.  A judgment in or transferred into a county you own real property creates a lien on that property.  Therefore, it is worth the extra $ to have your attorney strip the liens, whether it be a Chapter 7 or Chapter 13.

 

You have to strip them or future mortgage companies and settlement companies will cause you hell later! 

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  • 1 year later...

New question on judgment.  I am currently 21 months into a Chapter 13 BK.  All payments have been prompt.  I applied for an FHA loan on house and when my credit report was pulled it showed a judgment.  The judgment creditor was listed in Schedule F of the BK and did not file a claim.  This was for unsecured debt.  It's looking like HUD is going to deny my loan because the judgment wasn't satisfied, paid, or vacated.  Yet HUD's own rules state they can loan to someone in a Chapter 13 bankruptcy as long as they have paid promptly for at least a year and have permission from the court (which I have).  My debt to income ratio is fine.

 

How to I solve this conundrum?

This very same thing is happening to me 3 years into CH13.  Though it's a judgment sitting out there with no property to collect on, and creditors are part of the repayment plan.  I can't work with the creditors to pay it off, and can't qualify because of FHA rules.  Did you ever get around this?

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