Bankruptcy Lawyer Bryan W. Stone answers the question: “Are my 401k and IRA protected in bankruptcy?”
There are many reasons to file for bankruptcy. It can give you a break if you are financially crushed by debt, it can stop creditors from taking aggressive collection measures against you, and it can give you invaluable time to gain control of your financial situation.
Can a bankruptcy filing help you if a lien has been filed against you? Can North Carolina debtors file for bankruptcy on a judgment?
If your creditor files a lawsuit over the debt you owe them, the court will most likely enter a judgment against you for the amount of the money that you owe along with other costs. The creditor may use the judgment to garnish your wages or may even attempt to seize your property.
Filing for bankruptcy will result in an “automatic stay.” If ordered by the court, the automatic injunction immediately stops most civil lawsuits against you and prohibits any collection actions. After you finish your Chapter 7 or Chapter 13 bankruptcy, the creditor automatically loses their right to collect the debt.
Is the Judgment Based on Dischargeable or Non-Dischargeable Debt?
Whether or not you can file bankruptcy on a judgment depends on whether the judgment is for dischargeable or non-dischargeable debt. If you are being sued over dischargeable debt (e.g., medical bills, credit card debt, personal loans, utility bills, etc.), bankruptcy will eliminate it.
However, if the judgment is based on non-dischargeable debt, filing for bankruptcy cannot eliminate it. Non-dischargeable debt includes tax debt, child support, alimony, most student loans, and others.
A Judgment Lien can Survive Your Bankruptcy Case
While you may be able to eliminate the dischargeable debt the judgment against you is based on, there are other things to watch out for. Your creditor may obtain a lien on your property that gives them the right to it. Thus, the creditor can exercise the right to be paid from the proceeds when you sell the property.
The worst part is that a judgment lien can survive your bankruptcy case and make it difficult to sell or refinance your property in the long run. However, with a knowledgeable Charlotte bankruptcy attorney by your side, you can file a motion to remove the lien.
How to Avoid Judgment Liens in Bankruptcy
The following three elements must be proven to the court to avoid a judgment lien in your bankruptcy case:
- The lien is attached to a debt that is dischargeable;
- You have equity in the property the lien is based on; and
- The lien consumes a large portion of the equity in your property that could otherwise be exempted.
You are required to claim in your bankruptcy filing the right to exempt equity in your property in order to avoid a judgment lien. You must show proof that you need an exemption to release equity that has been “consumed” by the lien. Also, you must file a lien avoidance action.
Avoiding liens through bankruptcy can be rather challenging. Consult with a Charlotte bankruptcy attorney to discuss how you can file bankruptcy on a judgment. Contact Arnold & Smith, PLLC, to get help with your bankruptcy case: Call us at 704-370-2828 right now to get your consultation scheduled or find additional resources here.
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