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Can You Remove a Lien from a Home Title?

Owning Too much Property

A lien on a home title can become a problem if the creditor attempts to collect or you desire to sell your home.  Beyond paying the entirety of the home lien, there are a few ways that liens can be removed that do not involve full payment.   Bankruptcy can also sometimes assist in the lien-removing process.

Liens can Be Removed from a Home Title by Paying or Settling Them

The purpose of allowing a lien to be filed against a home is to force the eventual repayment of a debt.  Most liens, of course, on a home are voluntary such as mortgage or home equity loans.  Other liens are involuntary such as tax liens, mechanics liens, or judicial liens.  Tax liens are placed on a home when you do not pay your taxes.  Mechanics liens are for work done on a home that did not result in full payment.   Judicial liens can sometimes be placed on your home if judgment is rendered in the county that you live.

The most basic and obvious way to remove a lien is to pay or settle the debt.  If you settle the debt, the creditor will usually agree to remove the lien.  Many times you can settle these debts for less than the entire amount.   The earlier that you settle or pay these liens the better: paying them at the closing table is usually a harder time to negotiate a discount.

Liens can Also Be Removed at by the Passing of Time

Certain liens, especially tax liens, can sometimes be removed simply by the passing of time.  Some tax liens have limited durations such as 4 years before they automatically expire. Other liens may be removed eventually simply due to the fact that the creditor wants to write off the loans or clear up something on their books.   Keep in mind, however, that most liens will not simply “go away” just because of the passing of time.

Liens can Sometimes Be Removed By Various Operations within Bankruptcy

Although no lien is usually automatically removed by a bankruptcy filing, certain liens in limited circumstances can either be satisfied or “avoided” by operations possible during bankruptcy.   During a Chapter 13 case, a lien can be satisfied sometimes by proposal for complete or partial pay-off during the Chapter 13 case.   Other times, such as in the case of judicial liens, a motion to avoid a judicial lien can be filed during the bankruptcy.   This motion requires detailed information as to the lien and is never “automatically” filed on a case because it is an operation separate to the bankruptcy filing.   If the motion is successful, an order will be granted that “avoids” the judicial lien.

Certain unsecured second or third mortgages can sometimes also be “avoided” in bankruptcy, but only on a Chapter 13 filing.  This is also not an “automatic” feature of bankruptcy.   To avoid a wholly unsecured mortgage (such as situations where just the first mortgage puts the house “underwater” in home value), an entire lawsuit (adversary complaint) must be filed during the Chapter 13 process to see whether the mortgage is truly “under-water” and should thus be “avoided.”

Can Rental History Rebuild Credit?

Nothing can be more devastating to credit than to have a bad rental history.  If you have a bad rental history, it can be very difficult to secure housing.  However, a positive rental history can sometimes be a powerful way of rebuilding credit.   If your rental history is built correctly, it can be a powerful way to build and maintain your credit.

Rental History Can Rebuild Your Credit When It Is Being “Counted”

The most important way to prepare rental history to rebuild your credit is to make sure that it is “counted.”   Many landlords do not pull credit reports or report credit history to the credit bureaus.   Although you may be building a good history or “rapport” with your current landlord, it may not automatically translate into building a good history elsewhere.

If you believe that your landlord is not reporting your credit, you should approach your landlord to ask for an accounting of your payments.  Also, ask your landlord to serve a reference for you in the future.  Recommendation letters are always a good resource for the securing of future housing or loans.

Although historically, rent payments have not been recorded on credit reports, recently companies such as Experian have offered options for reporting credit.  Rent-Bureau is a new service offered by Experian for this purpose.  These rent payments can improve your credit.   Other good resources to report your “rent” credit are www.WilliamPaid.com and www.ClearNow.com.

The Most Powerful Credit Factor with Rent Payments is the Bad Credit

Although good rental history can positively affect your credit in limited situations, bad rental credit has a much more powerful effect.   Evictions are absolutely devastating to credit and they are almost always reported as a lawsuit or sometimes even a deficiency in your credit reports.  Having an eviction on your credit can extremely limit your housing options.    Evictions are the very thing that housing providers look for when you are seeking a new housing options.  They are also very detrimental in securing mortgage loans.   If you have evictions and excessive debts, you should consult with a bankruptcy attorney.  Bankruptcy will restore your credit to a degree and eliminate collection attempts that may cripple your budget in the future.

What Happens to the Cosigner in Bankruptcy?

Many times our clients as us, “What happens to a cosigner in bankruptcy?”  If more than one person “signs” on a debt, then the other person who “signs” with you is called a “co-signer” on the loan.  A cosigner is legally required to pay the entirety of the debt just the same as the primary signer.   When a bankruptcy is filed, a cosigner’s obligation to repay the debt remains the same.   However, the cosigner may still be protected in some ways by the bankruptcy filing.

Bankruptcy Does Not Erase a Cosigner’s Debt

When you file for bankruptcy, the obligation for the cosigner to repay the debt is not erased.   The cosigner is still fully responsible for the cosigned debt.   Although bankruptcy discharges the debt of the person who files, it does not discharge the debt of the cosigner who did not file.  If the cosigner wants the debt to be discharged for him or herself, the cosigner will also need to file bankruptcy.

The cosigner of a debt can sometimes negotiate, however, with the creditor in order to settle the debt after one party files bankruptcy.   Because one party is now “off-the-hook” on the loan, the chances for recovery on the loan may now be weaker.  If the cosigner does not want to file bankruptcy, a settlement may be possible.

Bankruptcy Can Offer Some Protection for a Cosigner

Although not much protection is offered to a cosigner during a Chapter 7 bankruptcy, Chapter 13 bankruptcy can have a much different affect on protecting cosigners.   In Chapter 13, a “Co-Debtor Stay” is put into effect by the filing of the case.  This means that if a cosigner is currently in a Chapter 13, then no collection efforts can be made against any cosigners.  This protection is offered because Chapter 13 allows the debtor the chance to pay (sometimes in entirety) the disputed debt through the Chapter 13 plan payments.  Therefore, it would not be fair to give the creditor the chance to collect on two parties at the same time.

The co-debtor stay in bankruptcy does not always protect the cosigner, however.  The Chapter 13 filer must substantially repay the creditor during the Chapter 13 plan for the co-debtor stay to be full-proof.  In addition, if the Chapter 13 plan does not pay back the creditor on the same terms, it may be possible for that same creditor to go back and collect the difference from the cosigner after the Chapter 13 case is completed.   Remember, cosigners have a separate, full obligation to repay the entirety of the debt back to the creditor.   Therefore, although Chapter 7 or Chapter 13 cases can assist in some degree the cosigner, they only very rarely fully release the obligations of the cosigner for repaying the debt.

What happens to the cosigner in bankruptcy?

Bankruptcy and IRA Exemptions- Is There a Maximum Cap in Bankruptcy?

If you have an IRA, 401k, or any other tax-exempt, tax-deferred retirement account, your retirement accounts are almost always 100% protected in bankruptcy.   This is due to bankruptcy “exemptions” which block your creditors from taking certain types of property during a bankruptcy filing.   There is a “cap,” however, to how much you can keep in an IRA during a bankruptcy filing.

Why IRA’s or Other Retirement Accounts are Exempt in Bankruptcy

IRA’s and other retirement accounts are usually exempt during bankruptcy as a matter of public policy.  Essentially, it is extremely important that people are given the chance to save for retirement in a way that cannot be wiped out by creditors.   If no form of retirement accounts were “exempt” in bankruptcy, any wave of unfortunate occurrences could wipe out a life-time of retirement savings.  In order to be fair and create an incentive to save for retirement, exemptions for most types of designated retirement accounts were created.

Remember, most forms of retirement accounts are exempt in bankruptcy.   However, it is important that your retirement savings are held in a proper vehicle – such as an IRA, Roth IRA, 401k, ESOP’s, and a few other clear vehicles.   Generally, these and some other types of established vehicles for retirement are exempt in bankruptcy.   However, stock accounts, annuities, savings accounts, and other legitimate methods of saving for retirement are likely not exempt if they are not held in designated, retirement-oriented-type account.

How Much is the Current “Cap” for IRA Accounts?

For quite a long period of time (since 2005), the “cap” on IRA accounts exempt in bankruptcy was set at $1,000,000 with gradual increases to follow.  This was an even number that was easy to justify: $1,000,000 seemed to be a fair allowance to afford a reasonable and comfortable retirement.   The justification was that amounts beyond this point could create incentives to prepare or transfer money that were based on “bankruptcy-proofing” instead of retirement.  This exemption is outlined in Section 522(n) of the Bankruptcy Code.

However, as of April 1, 2016, the new IRA “cap” was increased to $1,283,025.  The increase is to allow for the natural growth of the exemption “cap” to mirror natural growth of accounts.  The increase is also to allot for inflation.  This cap does not apply to 401k accounts or some employer supervised IRA’s offered to employees for employer-backed retirement.

What Are Priority Debts and Are they Dischargeable in Bankruptcy?

Priority debts are certain debts that take a “higher” priority than other debts during a bankruptcy.  These “priority” debts will be repaid first if any funds become available during bankruptcy.   In addition, most priority debts cannot be discharged through bankruptcy.

What types of debts are considered Priority Debts?

The most common sorts of priority debts are certain taxes and child support.  First, child support is always non-dischargeable during bankruptcy.   Child support is one of the most common forms of priority debt.   It is important to determine if a certain type of divorce-related debt is considered by family law and bankruptcy courts to be child support.  Certain debts such as martial settlement agreements and other payments may not be child support even if children are involved in the divorce.

Certain taxes are also a very common form of non-dischargeable debt.  Income tax debt that is less than 3 years old (going by the due date of the return) is a very common form of priority debt.   Therefore, if you have recent tax debt to IRS or your state revenue department, it will likely be non-dischargeable, priority debt during your bankruptcy.  Other forms of tax debt such as payroll taxes or sales tax is also priority debt.   Property taxes and other various forms of tax may likely not fall into priority status.

Other priority debts include criminal fines, criminal fines, injury caused by intoxicated driving, and overpayment of government benefits.  Some debts, including these, could be classified as “non-dischargeable” (which means they cannot be erased by bankruptcy), but they are not “priority” debts.   A good example of a non-dischargeable debt that is not a priority debt are student loan debts.  Student loan debts are non-dischargeable in bankruptcy but are usually only classified as normal, “unsecured” debts.

Priority Debts are Generally Non-Dischargeable in Bankruptcy

For the most part, priority debts cannot be discharged during bankruptcy. This simply means that you will still need to pay the debt after your Chapter 7 case.  If you file a Chapter 13 case, you will likely be required to pay the entirety of the priority debt through your Chapter 13 plan payments.   Priority debts treated differently during bankruptcy because of their “priority” status: they must at some point be paid.  This priority status protects them from being easily discharged by filing bankruptcy.