Bankruptcy can prevent future judgment liens. It usually stops a lawsuit from turning into a judgment, and then a judgment lien on your home.
Judgment Liens Are Dangerous
Our last blog post was about how filing bankruptcy can sometimes remove, or “avoid,” a judgment lien from your home. This is a great potential benefit of bankruptcy if a judgment lien has already been recorded.
But it is often much better to file a bankruptcy case before a judgment lien hits your home’s title. Here are a few of the practical reasons why:
- You have to meet certain strict conditions to be able to avoid the judgment lien. If you don’t meet them, even bankruptcy won’t get rid of that lien on your home. You may have to pay all or part of the debt in spite of filing bankruptcy.
- Even if you succeed in avoiding the lien in your bankruptcy case, it is an extra step that can cost you more. And the cost can go up substantially if the creditor fights your lawyer’s efforts to avoid the lien. Besides higher lawyer fees, you may have to pay for a home appraisal and for the court testimony of the appraiser.
- The existence of a judgment lien adds uncertainty, and thus some extra anxiety, to your bankruptcy process. The goal of bankruptcy is relief. So it’s better to prevent a judgment lien from hitting your home than messing with it after it has hit.
Judgment Liens Are Preventable
Filing bankruptcy usually stops an ongoing lawsuit against you from turning into a judgment. Bankruptcy’s “automatic stay” immediately stops “the… continuation… of a judicial, administrative, or other action or proceeding against the debtor… .” Section 362(a)(1) of the U.S. Bankruptcy Code.
Filing bankruptcy also usually prevents future lawsuits against you from being filed much less turning into judgments. The automatic stay” immediately stops “the commencement… of a judicial, administrative, or other action or proceeding against the debtor… .” Section 362(a)(1) of the U.S. Bankruptcy Code.
The exceptions are debts that cannot be written off (“discharged”) in bankruptcy, such as certain ones based on fraud, income taxes, child or spousal support, or criminal behavior. But bankruptcy does discharge most debts. So filing bankruptcy will stop ongoing and future lawsuits on all those debts. And it will prevent those debts from turning into dangerous judgment liens on your home.
The Timing Can Be Crucial
Filing bankruptcy triggers the protections of the automatic stay. It’s too late once a judgment lien has already been recorded. (Except if that lien qualifies for getting “avoided.”)
It’s safest to file your bankruptcy case before you’ve been sued by a creditor. Once you’ve been sued, state laws differ about how quickly that lawsuit will turn into a judgment, and then a judgment lien. State laws also differ about what you and your lawyer can do to slow down that process. Intervening to slow it down may make sense so that you can file the bankruptcy case before a judgment lien can get recorded.