Once a creditor obtains a judgment against you in court, there are several options available to the creditor to collect on the awarded judgment. One of the often used methods is to record the abstract of judgment with the county recorder. The creditor in many states can take the awarded judgment and record it against real estate you own. When the judgment is recorded against your home or any real estate, it becomes a debt that must be satisfied in order for you to own the home or real property free and clear.
In California, the judgment can become a lien against any real estate located in the county where the judgment was recorded. In many states the creditor can also place a lien against your personal property by filing the notice of judgment lien with the Secretary of State. If a judgment lien has been recorded against your real or personal property, bankruptcy can help avoid the lien.
Under Section 522(f) of the bankruptcy code a judgment lien can be removed/avoided from your real or personal property if it meets with the following requirements:
- Judicial Lien- the lien must have been obtained as a result of a judgment or other legal process. A judgment lien is obtained in California, by obtaining a judgment and then recording the judgment with the county recorder or
- Non-possessory and Non-purchase Lien – In order to qualify the creditor cannot have actual physical possession of the asset themselves but simply a legal claim against it. The lien cannot have resulted from you consensually placing a lien on the property in exchange for the creditor extending you creditor to purchase the asset and the lien is on:
- Household Items-The lien can be avoided on items such as household goods, clothing, furniture, appliances, radio, television, jewelry
- Professional books, tools of the trade
- Health Aids
- Entitlement to Exemption is Impaired-The judicial lien must impair your right to claim a bankruptcy exemption in order to avoid the lien. For example in California there is a $26,925 wildcard exemption that allows you to protect any items totaling up to that amount. If a judicial lien for $5,000 was placed on your paid in full vehicle worth $10,000 it would impair your right to claim the full $10,000 as exempt. The judicial lien would damage your ability to claim the full value of the vehicle as a protected asset using the wildcard protection.
In bankruptcy a motion to avoid a judicial lien can be filed in a Chapter 7 and Chapter 13 bankruptcy case. If the court finds that the judgment lien can be avoided then an order will be issued by the court. Once the lien is avoided in bankruptcy it is considered invalid.
The process in California, requires that you record the order avoiding the judicial lien with the county recorder. You must obtain a certified copy of the order avoiding the judgment lien and record it with the county recorder where the judgment lien was recorded.
WHAT IF YOU DO NOT OWN ANY REAL PROPERTY AND A JUDICIAL LIEN WAS RECORDED?
If there is no real property then the judicial lien does not attach to any property. Would you then need to file a motion to avoid the lien? In some circumstances it may be advisable to do so. After the filing of your bankruptcy, the existing judicial lien will not attach to any after acquired real property. The problem results from many mortgage companies, real estate agents and finance companies not understanding that the judicial lien is not attached to the after acquired real property. The misperception is that lien does attach to the new property that was acquired after bankruptcy. This can create problems for selling a home, refinancing a property or obtaining a loan modification.
To protect yourself you may wish to file a motion to avoid a lien, even when no real property exists that it attaches to. Some courts find that there is no need to file a motion to avoid a judicial lien where no real property exists, while other courts will issue an order avoiding a judicial lien although there is no real property that the debtor owns.
For further information on how a credit card company can place a lien on your home go to: Can a Credit Card Put a Lien On My Home?
Contact a local bankruptcy attorney if you have received a notice from the secretary of state or the county recorder indicating that a judgment lien has been recorded against your property.