This section of the website does not deal with a security interest in real estate, such as a mortgage. For more information about eliminating second or third mortgage debt or liens, see our section regarding eliminating mortgage debt in New Jersey bankruptcy
This section relates to judgment liens. A debtor may possibly eliminate a judgment lien in a Chapter 7 and/or Chapter 13 if the debtor meets all of the required criteria. An example of a judgment lien is the following:
If the lien is not satisfied or eliminated by bankruptcy court order, the individual will be required to satisfy the lien at the sale or purchase of real estate. This means that if the individual attempts to sell his property, the debt must be satisfied by the individual. In the event that the individual attempts to purchase property, the debt must be satisfied by the individual. As I explained, a Chapter 7 or Chapter 13 discharge eliminates a creditors’ ability to commence and/or pursue an action against the debtor, personally, for the debt due to the creditor. A general Order of Discharge does not remove a lien. A bankruptcy court may eliminate or reduce a judgment lien, if the debtor meets the criteria. To reduce the lien, the debtor must take the additional step and file papers with the court requesting such an order.
If there is no equity in the property after subtracting the fair market value of the real estate at the time of the filing by the mortgage payoffs, on all mortgages, the judgment lien may be totally eliminated.
If there is equity in the property, the debtor may still eliminate all or a portion of the lien. The bankruptcy code explains this in following terms:
Each debtor is allowed $22,500.00 in exemptions with regard to the real estate in which they reside. An example of how this works, is as follows:
- Fair market value of the real estate is $150,000;
- mortgage payoff of $100,000;
- judgment lien in the amount of $20,000
- Fair Market Value of Property
- Mortgage Payoff
- Bankruptcy Code Real Estate Exemptions
- 10% Cost of Sale on $150,000
- $150,000.00
- -100,000.00
- $50,000.00
- -22,500.00
- $27,500.00
- -15,000.00
- $12,500.00
Based on the fact pattern reflected above, the $20,000 lien is reduced to $12,500. Therefore, the debtor may completely eliminate the judgment lien by making a payment of $12,500. A bankruptcy court judge may require, both, an order eliminating / reducing the lien, in addition to an order of discharge prior to actually eliminating or reducing the lien.
Contact a NJ Bankruptcy Lawyer
If you are considering filing for protection under chapter 7 or chapter 13 of the New Jersey Bankruptcy Code and have outstanding liens on real estate, you should consult with an attorney. Robert Manchel of The Law Offices of Robert Manchel has been helping individuals eliminate real estate lien debt in bankruptcy proceedings for 18 years. Contact our veteran New Jersey bankruptcy lawyers today for a free evaluation of your case at (866) 503-5655 or fill out our online contact form for an immediate response.