Bankruptcy always discharges unsecured debt such as credit cards, medical bills, and payday loans. However, "liens" usually survive bankruptcy.
So, you ask, "What the heck is a 'lien?'" A lien is simply a debt chained to a specific item of property. For example, a mortgage debt chained to your home, or a purchase money bank loan chained to your vehicle. In both examples, the bankruptcy filer must continue to make the loan payments to keep the car or home after the bankruptcy.
Here is the good news: There are a few exceptions, when a bankruptcy filer can discharge the debt and erase the lien. Read on to learn when you can have your cake and eat it too.
- A "judgment lien" can be erased in bankruptcy.
After a collection agency obtains a judgment in county court, they will often then file the judgment in district court. By filing in district court, the judgment now becomes a lien on real estate owned by the debtor. This lien would have to be paid in full if the debtor tried to sell the house. However, if the debtor files bankruptcy, and has lived in the home with a spouse, child, or relative, a special motion ("motion to avoid a lien") can be filed with the bankruptcy court to erase this lien. As a result, the debt is completely gone, and the home can be sold free and clear.
- "Non-purchase money liens" on cars used by the debtor to drive to work can also be erased in bankruptcy.
A "non-purchase money lien" on your car is created when you borrow money, using your car as collateral, after the purchase of your automobile. While the bankruptcy filer that took out a loan to buy the car in the first place must usually keep making the loan payments to keep the car, the non-purchase money borrower has the opportunity to discharge this debt. In this situation, the bankruptcy filer can stop making the loan payments and force the finance company to return the title to the debtor "free and clear" of the lien.
Don't make the costly mistake of confusing "loans" and "liens" in bankruptcy. A significant amount of money can be saved by the bankruptcy filer that understands the difference, and takes advantage of the opportunity to erase these types of liens. If you have questions about removing judgment liens or non-purchase money vehicle liens in bankruptcy, please contact the Nebraska bankruptcy lawyers and staff at the Steffens Law Office. We have over 50 years combined experience in debtor/creditor law, and are dedicated to helping you keep your property away from creditors.