A lien can make it much more difficult to sell your property, as the property can’t be sold or even refinanced until the lien is removed. In New York, liens are most often placed by the New York Department of Revenue, HOAs, or contractors when they haven’t been paid.

There are several ways in which bankruptcy protections or processes could impact a lien on a property. Here’s what you need to know.  

Types of Liens

There are two types of liens: voluntary and involuntary.

A voluntary lien secures your property in order to obtain a loan. You agree that the bank can take your car or your house back if you fail to pay the loan.

An involuntary lien is a lien that creditors place on your property without your consent. These are the liens that we see from HOAs, contractors, and the NY Department of Revenue.

An involuntary judgment lien allows an entity that wouldn’t normally have the right to place a lien to do so by going to court and obtaining a judgment. 

Before the Lien is Filed—The Automatic Stay

If you think it’s likely that an entity is going to place an involuntary lien on your property and act fast enough, you may be able to file for bankruptcy and gain the protection of the automatic stay before the lien is put into place. 

This is often the best course of action because it’s easier to prevent or block the lien than it is to deal with it after it is already in place. 

It’s not foolproof since some creditors can petition the bankruptcy court to lift the automatic stay in some cases. But it is one of the best protections you can get. If you think a lien is likely, you are already in a position where you should start thinking about filing.

Liens in Chapter 7 Bankruptcy

Voluntary liens may not be removed in Chapter 7 bankruptcies. The trustee might not opt to sell your house, but if you choose not to reaffirm your home loan, then the bank can still foreclose on it.

You can ask for an involuntary judgment lien to be set aside if it will prevent you from obtaining the full benefit of a bankruptcy exemption.

Often, the lien will become a moot point because the trustee will sell your property and use the proceeds to pay off creditors. 

Liens in Chapter 13 Bankruptcy

If one of your liens is from a second mortgage (known as a junior mortgage), you might be able to have the lien stripped in a Chapter 13 bankruptcy. The courts essentially declare that the junior mortgage is essentially an unsecured debt. This only works when the first mortgage is upside down: you owe more on the first mortgage than the property is actually worth. 

The lien will still be gone when you receive your bankruptcy discharge. In addition, other sources of involuntary liens will have either been paid off or partially paid and presented with a discharge, which means the lien should be eliminated along with the debt as soon as the process is complete. 

Liens Can Get Complicated 

Liens are just one of the many reasons why you should have a good bankruptcy lawyer on your side before you file.

Considering bankruptcy? Contact our offices to get help today.

See also:

The Pros & Cons of Chapter 7 vs. Chapter 13 Bankruptcy

What Are the Duties of a Bankruptcy Trustee?

3 Debts You Can Discharge in Chapter 13 That Can’t be Discharged in Chapter 7