Filing bankruptcy can eliminate your personal responsibility for repaying secured debt, but if a creditor has a lien on your property it stays on your property even after you file.
Whether you can discharge your lien through bankruptcy will depend on the type and whether you file for Chapter 7 or 13. The good news is, Chapter 7 bankruptcy can help you eliminate judgement liens in certain cases. And Chapter 13 bankruptcy can lead to lien stripping.
Some debtors may not realize they have a lien on their property, or don’t understand whether a lien can be satisfied after filing bankruptcy. Consulting a qualified bankruptcy lawyer can help you decide the best way to deal with your debt and any associated property liens.
Learn what you MUST know about filing for bankruptcy in Wisconsin by scheduling a completely free bankruptcy consultation today with the Law Office of Steven R. McDonald, LLC.
Liens are present whenever there is secured debt. A debt is secured by linking it to property you own, referred to as collateral. This, in theory, ensures repayment of the debt.
If the debtor falls behind in payments, the creditor may repossess the collateral. The creditor’s legal right to claim the property is called a lien. There are several types of liens common in Wisconsin.
A mortgage or a car loan is an example of a consensual lien, because when you take the loan you agree the bank or lending institution can claim your house or car if you fail to make payments. The IRS can also put a tax lien on your house or property if you fail to pay the taxes you owe.
A judgment lien is a nonconsensual lien attached to your property after another party wins a lawsuit against you. In the state of Wisconsin, judgement liens only apply to real estate. The lien lasts for 10 years, even if the property itself is transferred or sold to another person.
Filing chapter 7 bankruptcy can help you satisfy judgment liens resulting from a court ordered judgment. Milwaukee’s trusted bankruptcy lawyer can help you determine the best course of action based on your individual circumstances.
Bankruptcy will not get rid of recorded tax liens on your property, even if the underlying tax debt has been discharged. This means if you want to sell the property you will need to pay the tax lien first.
Some taxes can be discharged in chapter 7 but under very limited circumstances and even then, it applies to income taxes only. If your tax debts qualify for discharge, it can stop IRS attempts to garnish your wages and bank accounts. To determine if your tax debts can be discharged you will need to speak to a knowledgeable attorney.
Filing for chapter 7 will not get rid of a mortgage lien on your house. This is because the mortgage lender is a secured creditor, and chapter 7 bankruptcy addresses each part of your secured debt differently.
It wipes out your obligation to repay the debt (as long as the debt qualifies for discharge by bankruptcy), but it does not wipe out a creditor’s lien on any collateral. The creditor still has the right to foreclose and sell the property.
This means if you have a lien on your house you will need to keep paying your mortgage in order to keep your home, even after filing bankruptcy. However, filing for chapter 7 bankruptcy may be able to help you delay foreclosure. The extra time may be what you need to catch up on mortgage payments or renegotiate with the creditor.
Under chapter 13 bankruptcy a process called lien stripping can make it possible to remove a "junior lien" from real estate property (typically a second or third mortgage).
In most cases the earliest recorded lien has priority over later liens. This ensures proceeds from a foreclosed house repay the first mortgage lender before any subsequent mortgage lenders.
If a mortgage lender wouldn't receive any repayment through foreclosure, the second (or third) mortgage would be considered "wholly unsecured" and could be stripped through filing Chapter 13 bankruptcy.
For more information about lien stripping in Chapter 13 bankruptcy, schedule a free consultation with our attorney.
Whether or not you will benefit from Chapter 7 or Chapter 13 bankruptcy depends on your situation and your goals. Milwaukee area bankruptcy attorney Steven R. McDonald offers a free bankruptcy case assessment and evaluation to people considering filing bankruptcy. He can help you understand your rights and help you make decisions in your best interests.