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Removing Judgments on Real Estate through Bankruptcy

Alex Moretsky

A judicial lien in Pennsylvania is a non-consensual (without your agreement) lien that attaches to your property, such as a house or a car. It happens when someone, usually a creditor, sues and wins a lawsuit and gets a monetary judgment against you. The judgment is then recorded against your property, which creates a lien. The lien attaches to property you own that is located in the county in which the judgment was entered. The judgment can easily be transferred to any other county in Pennsylvania in which you own property and would attach to that property, as well.

When filing either Chapter 7 or Chapter 13 bankruptcy, the judgment lien can be eliminated or reduced by filing a Motion to Avoid Judicial Lien requesting that the lien be removed from the real estate. Two key factors must exist in order to remove the lien. First, the judgment debt must be listed on the bankruptcy petition. Second, the lien would impair some or all of the exempt equity in your property. Let’s assume you own a house with a fair market value of $250,000. You have a single mortgage with a balance of $260,000 and a judgment lien of $20,000. Given this set of facts, you could eliminate the entire $20,000 judgment lien. If we change the facts by reducing the mortgage balance to $220,000, you would be able to reduce the judgment lien by about $14,000 ($250,000 [FMV] – 220,000 [Mortgage balance] – 24,000 [exemption limit on real estate] = $6,000. Thus, $14,000 of the $20,000 judgment lien would be eliminated, while $6,000 would still exist. Changing the facts one last time, assume that the mortgage balance is $150,000. In this situation, you would not be able to eliminate or reduce any portion of the judgment lien because there is enough equity in the house to cover the lien, even when the exemption is accounted for.

While the order of discharge is effective immediately in Chapter 7 bankruptcy cases, Chapter 13 cases typically last three to five years. In some jurisdictions, once a lien is avoided in a Chapter 13 bankruptcy case, it becomes effective immediately rather than years later when the debtor receives a discharge. The reason this distinction is important is because the majority of chapter 13 cases do not make it to discharge for one reason or another. If the chapter 13 case is not discharged, then the lien remains intact, despite the bankruptcy court’s order to the contrary.
To determine whether you may discharge your liens by filing bankruptcy, contact a Montgomery County bankruptcy lawyer.