Santa Fe Bankruptcy Lawyer Blog » Legal Rights During and After Bankruptcy

Lien Avoidance in Bankruptcy, Part Two

Gini — Tue, 02 Mar 2010 13:00:49 +0000

This is the second post in a three-part series by Charleston Bankruptcy Lawyer, Russell A. DeMott. Russ also practices real estate law, and has shared his knowledge of how the Bankruptcy Code can be used to strip judgment liens from real estate.

In “Lien Avoidance (Part One),” I introduced the concept of liens. In this post, I’ll explain how a particular type of lien called a “judicial lien” works.

A judicial lien results from a creditor obtaining a judgment against you and recording that judgment in the county in which you live.

For example, if you default on your Master Card payments, the card issuer will eventually sue you. Assuming you have no defense—you just stopped paying and the creditor hasn’t waited too long to sue you—the creditor will obtain a judgment against you. Once that judgment is recorded in the county in which you own property, it’s a—you guessed it—a lien on your property. We call judgment liens “judicial liens” because they arise out of the judicial process through court cases.

Why is This a Problem?

I discussed the obvious problem in Part One—that the judgment lien creditor can take your house. But that’s not always the real problem. Let me give you an example. If you have a home worth $200,000 and you have a first mortgage on the property for $150,000 and a second mortgage (like a home equity loan) for $35,000, there’s $15,000 of equity. That’s what the judicial lien creditor is after, right? But the judicial lien creditor won’t try to take the property—called “levying execution.” Why? The judicial lien creditor is third in line behind two other creditors. In this example it’s the first and second mortgage. With so little equity, the judicial lien creditor is probably out of luck. If the creditor were to force a sale of the property, the first and second mortgage holders would get paid first, leaving virtually nothing for the judicial lien creditor. This is because the property would not be sold for its fair market value of $200,000. Instead, it would likely be impossible for the judicial lien creditor to get enough to pay off the first and second mortgages.

So I’m Protected as Long as I Don’t Have Much Equity?

Not exactly. There are two things which need to concern you. First, in New Mexico, judicial liens are valid for fourteen years. So while you don’t have equity now, you may ten years from now.

Second, there’s another practical set of problems. The judicial lien renders your property unmarketable. It’s what real estate lawyers call a “cloud on title.” You must pay it off in order to pass marketable title to someone who wants to buy your property. In our example, with the judicial lien on your $15,000 of equity, it would be impossible to sell your property without paying off the lien. There’s no equity left for costs of sale like realtors’ commissions, deed stamps, and property taxes. And even if you don’t want to sell the property, you might want to refinance it some day.

Here’s Where the Bankruptcy Code Comes to the Rescue

Remember from Part One how “liens survive bankruptcy?” Well, there’s an important exception. The Bankruptcy Code provides that, to the extent the judicial lien impairs your exemption in your property; you may “avoid” the lien. Exempt property is property which, by law, you are allowed to keep.

For example, if you have a home worth $200,000 and a mortgage for $170,000, you have $30,000 in equity. In New Mexico you can exempt—retain— $60,000 in equity in your home ($120,000 for married debtors). If your credit card company sues you and gets a judgment against you for $20,000, that judicial lien “impairs” your exemption. It’s eating up that $30,000 worth of equity. Because of this impairment, you can file a motion to “avoid” the lien on your home. The court will then enter an order providing that the lien is avoided. The result is you avoid all of the problems discussed above. Your property is no longer saddled with the judicial lien.

Make Sure You Tell Your Bankruptcy Lawyer About Any Judgments Against You

Be sure to tell your lawyer if you have judgments against you. She can’t do anything to avoid these judicial liens unless she knows about them. Bankruptcy lawyers aren’t going to do a title search on your property as part of your bankruptcy case unless they first know of a problem. And it’s up to you to tell them.

In “Liens in Bankruptcy (Part Three),” I’ll discuss another kind of liens, liens on your household goods.

Bankruptcy Lawyer Russ DeMott is also a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blog.” His series continues next week.

Lien Avoidance in Bankruptcy, Part One

Gini — Wed, 24 Feb 2010 12:11:32 +0000

Guest Blogger Russell A. DeMott, a Charleston, South Carolina bankruptcy lawyer who helps clients file Chapter 7 and Chapter 13 bankruptcy, begins his series today.

Lien Avoidance in Bankruptcy (Part One)

The Bankruptcy Code allows both judicial liens and liens on household goods to be “avoided,” that is, removed from your property. In this three-part series, I’ll explain liens and how your bankruptcy lawyer can get them avoided. The Bankruptcy Code is federal law, so this applies to people in New Mexico just like it does with the clients I see in my Charleston, South Carolina practice.

What is a Lien?

A lien (typically pronounced “leen”) is a claim against property for payment of a debt. There are many examples of liens. The mortgage on your home is a lien. The security interest your automobile finance company has in your car is a lien. If you don’t pay your homeowner’s association dues, you’ll have a lien on your property for those unpaid dues. If you don’t pay the IRS, they’ll put a tax lien on your property. The same goes for your property taxes. And in most states, if you fail to pay a contractor—let’s say an electrician—he can put a “mechanics lien” or “construction lien” on your property.

In this series, I’ll not be dealing with these types of liens, however. I’ll deal with two other types of liens: liens on household goods and judicial liens.

How Does the Bankruptcy Code Treat Liens?

The general rule is this: Liens survive bankruptcy. That means, generally speaking, if you have a lien on your property when you file bankruptcy, you’ll have a lien on your property after your bankruptcy case is closed.

For example, if you file bankruptcy and have a mortgage on your property, you’ll have one when your case is closed as well. The same goes for tax liens, property taxes, and other liens. But this is the general rule!

Why are Liens a Bad Thing?

Liens are bad because if you don’t pay them, you can potentially lose your property. And, like I said, liens survive bankruptcy.

In “Lien Avoidance (Part Two of Three)” I’ll tell you about judicial liens and how the Bankruptcy Code allows you to remove this type of lien from your property.

Russ also is a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blog.” His series continues next week.

Lien Avoidance in Bankruptcy

Gini — Thu, 04 Feb 2010 13:55:08 +0000

From time to time, a Guest Blogger will share voice at the New Mexico Bankruptcy Law Blog. Today, we welcome Russell A. DeMott, a Charleston, South Carolina bankruptcy lawyer who helps clients file Chapter 7 and Chapter 13 bankruptcy. Russell also is a Contributing Author at the Bankruptcy Law Network, an ABA “Top 100 Law Blogs.”

Russ has written a 3-part series for the New Mexico Bankruptcy Law Blog on “Lien Avoidance in Bankruptcy.” It starts in two weeks. Topics include:

What is a Lien?
How Does the Bankruptcy Code Treat Liens?
Why are Liens a Bad Thing?
So I’m Protected as Long as I Don’t Have Much Equity?
Here’s Where the Bankruptcy Code Comes to the Rescue

Welcome, Russ! We look forward to your series!

When Debt Collectors Call, Part 10: The Fair Credit Reporting Act (FCRA) and Other Things You Should Know — NMBankruptcyBlog.com

Gini — Tue, 08 Sep 2009 13:00:12 +0000

From time to time, a Guest Blogger will share voice at the New Mexico Bankruptcy Law Blog. Today, we welcome Deborah DeMack. Deborah is a former Assistant Attorney General in the Consumer Protection Division of the New Mexico Attorney General’s Office. A solo practitioner now in private practice in Santa Fe, NM, Ms. DeMack practices consumer law, debt collection defense, and consumer bankruptcy. She can be reached at 505.471.3302. This is part 10 of the series.

When Debt Collectors Call, Part 10: The Fair Credit Reporting Act (FCRA) and Other Things You Should Know

If a debt collector has contacted you, chances are that negative or adverse credit information has been reported to one or more credit bureaus. It is a good idea to obtain a copy of your credit reports at least once a year to verify the accuracy of your credit history. Under federal law, consumers are entitled to one free credit report from each of the three credit bureaus each year.

Any false or inaccurate information can be disputed with either the “furnisher” of information to the credit bureaus — i.e., the original creditor or the debt collector — or directly with the credit bureaus. It is best to put your dispute in writing, and send your letters of dispute to both the furnisher of the information as well as each of the three major credit bureaus. Once a consumer disputes a debt with a furnisher, the furnisher is obligated not only to report the debt to the credit bureaus as being in dispute, but it also must investigate the disputed debt. Once notified of a dispute, the credit bureaus must report the debt on the consumer’s credit report as being in dispute.

Previous posts in the series: Debt Collection Abuse and the FDCPA, To Whom Does the FDCPA Apply? What Debts are Covered?, How May a Debt Collector Contact You?, What Acts or Practices are Prohibited by the FDCPA?, How Do You Stop a Debt Collector from Contacting You?, The 30 Day Validation (Verification) Notice, Statutes of Limitations, Other Types of Illegal Debt Collection Acts, What are Your Rights and Remedies under the FDCPA?

When Debt Collectors Call, Part 9: What are Your Rights and Remedies under the FDCPA? — NMBankruptcyBlog.com

Gini — Wed, 02 Sep 2009 13:00:48 +0000

What are Your Rights and Remedies under the FDCPA (Fair Debt Collection Practices Act)?

You have the right to sue a debt collector in state or federal court within one year from the date the law was violated. If you prevail, you may recover actual damages, attorney fees and costs, and additional (statutory) damages up to $1,000 per violation. This does not include damages which may be awarded for any other associated legal claims.

Next in the series is Part 10: The Fair Credit Reporting Act (FCRA) and Other Things You Should Know

When Debt Collectors Call, Part 8: Other Types of Illegal Debt Collection Acts — NMBankruptcyBlog.com

Gini — Tue, 01 Sep 2009 13:00:56 +0000

Other Types of Illegal Debt Collection Acts

Debt collectors — most notably, “junk debt” buyers — often try to collect on debts that have been discharged in bankruptcy or are not legally owed by the consumer from whom the debt collector is attempting to collect monies. All too many debt collectors will misrepresent the true legal status or character of the debt, in an attempt to collect on debts that are not legally owed by the consumer. Unfortunately, all too many consumers, misled by the debt collectors, unwittingly agree to pay. Like old debts that are past the SOL, the consumer, in essence, has created a new contract or agreement to pay. So long as the consumer was not deceived into paying, the new agreement may be legally enforceable.

Next in the series is Part 9: What are Your Rights and Remedies under the FDCPA (Fair Debt Collection Practices Act)?

When Debt Collectors Call, Part 7: Statutes of Limitations — NMBankruptcyBlog.com

Gini — Wed, 26 Aug 2009 13:00:54 +0000

Statutes of Limitations

In New Mexico, the statute of limitations (SOL) for written contracts is 6 years, 4 years for oral contracts. For open accounts, e.g., a revolving charge or credit card account, it’s 4 years.

Significant problems arise with debt collectors — usually debt buyers — who attempt to collect on debts that are past the applicable SOL. While the consumer may not be legally obligated to pay on a debt that is past the applicable SOL, it is not illegal for a debt collector to collect or attempt to collect on an old debt. However, the debt collector may not deceive or mislead the consumer as to the legal status of the debt in at attempt to collect. Even though a consumer is not legally obligated to pay, and cannot be sued on a debt that is past the SOL, if a consumer nevertheless agrees to pay an old debt, the consumer has then “revived” the debt. A “revived” debt becomes legally enforceable — provided that the consumer was not deceived into agreeing to pay.

Next in the series is Part 8: Other Types of Illegal Debt Collection Acts

When a Debt Collector Calls, Part 6: The 30 Day Validation (Verification) Notice — NMBankruptcyBlog.com

Gini — Tue, 25 Aug 2009 13:00:27 +0000

The 30 Day Validation (Verification) Notice

Within five days of the initial contact from a debt collector (typically, by phone) the FDCPA requires that the debt collector must send you a written notice informing you, the consumer, that you have the right to dispute the debt, in part or in whole. The notice must also state the name of the creditor, the amount of the debt, and that you have the right to ask for verification of the debt. Until the debt collector is able to verify the debt, i.e., provide copies of the underlying credit agreement and related paperwork, a copy of the judgment, or the name and address of the original creditor, the debt collector must cease all collection activity.

Next in the series is Part 7: Statutes of Limitations

When Debt Collectors Call, Part 5: How Do You Stop a Debt Collector from Contacting You? — NMBankruptcyBlog.com

Gini — Wed, 19 Aug 2009 13:00:22 +0000

How Do You Stop a Debt Collector from Contacting You?

You can stop a debt collector from contacting you by writing a letter to the collector informing them to cease contacting you. The debt collector may not contact you again except to say that there will be no further contact or to notify you that the debt collector or the creditor intends to take some specific legal action against you. However, merely writing such a letter will not make the debt go away if you actually owe the debt.

Next in the series is Part 6: The 30 Day Validation (Verification) Notice

When Debt Collectors Call, Part 4: What Acts or Practices are Prohibited by the FDCPA? — NMBankruptcyBlog.com

Gini — Tue, 18 Aug 2009 13:00:59 +0000

What Acts or Practices are Prohibited by the FDCPA (Fair Debt Collection Practices Act)?

The FDCPA is intended to protect consumers from harrassment, abuse, invasion of privacy, false or deceptive representations, and unfair or unconscionable collection methods.

Specific prohibited acts include calls before 8 a.m. or after 9 p.m., repeated phone calls, use of obscene or profane language, communicating with anyone other than the consumer or the consumer’s attorney about the debt, representing that non-payment of a debt will result in arrest or imprisonment, false threats of legal action, threatening to report false credit information to the credit bureaus, representing that documents are authorized or issued by any court, official or agency of the United States government or state government, or any other false, deceptive or misleading representation or act in connection with the collection of a debt.

Next in the series is Part 5: How Do You Stop a Debt Collector from Contacting You?

Previous posts in the series: Debt Collection Abuse and the FDCPA, To Whom Does the FDCPA Apply? What Debts are Covered?, How May a Debt Collector Contact You?