How to Avoid a Judicial Lien in Ann Arbor
Dealing with a judicial lien can feel overwhelming, especially when you’re trying to protect your home or assets in Ann Arbor. You do not need to worry. You are not alone. We will break down what a judicial lien is, why it matters, and, most importantly, how you can avoid one in the first place.
What is a Judicial Lien?
A lien gives the creditor the right to take a debtor’s property in order to ensure that the amount owed is paid. The court may place a lien on the property so that the debt is cleared. The creditor can take the property and sell it if the debt is not paid. People going through bankruptcy use lien avoidance to remove a lien from their property so that they do not lose it in the process of paying back the debt. [1]
Avoiding Judicial Lien
Lien avoidance helps people keep their property and valuable assets even when they are going through bankruptcy. It gives a fresh start to rebuild finances. Lien avoidance means that your assets are no longer tied to the debt, and you may keep them even if you fail to pay the amount owed.
To avoid a judicial lien, you must file a “Motion to Avoid Judicial Lien” in a bankruptcy court.
In Michigan, lien removal (or “lien avoidance”) applies if someone is filing for Chapter 7 or Chapter 13 bankruptcy. Here’s how it works:
- A lien made with the person’s permission (a "voluntary lien") can not be removed in Chapter 7 cases, and in Chapter 13, it only gets removed if certain conditions are met.
- A lien created by law (an "involuntary statutory lien") can be removed by the bankruptcy trustee, but this doesn’t often happen.
- A lien from a court judgment (an "involuntary judgment lien") can be removed by filing a Motion to Avoid Judicial Lien.
Only liens placed without the debtor’s agreement can be removed. Liens can also be removed if they block the person’s right to exemptions, like protecting their home from being taken. If a lien interferes with these protections, it can be removed.
Cramdown in Chapter 13 Bankruptcy
Cramdown is a lien avoidance strategy that can be used to reduce the amount of debt. It is usually used for investment properties and automobiles. In this strategy, the amount of debt is lowered to the value of the property that caused the debt. However, cramdowns are not allowed on residential property. [2]
Lien Stripping in Chapter 13 Bankruptcy
Lien stripping applies to real estate and comes into pay when you have multiple mortgages against the same property. Depending on the value of your property, the junior lien can be discharged at the end of your repayment plan under Chapter 13. [3]
Partially Avoiding Judicial Lien
A bankruptcy attorney can help you determine if partial lien avoidance is an option. You may have an exemption in an asset, but that exemption may not be enough to cover the entirety of the property. In this case, part of the judicial lien can be avoided.
Every bankruptcy case is different. Judicial liens are major obstacles when going through bankruptcy.
Implications of a Judgment in Ann Arbor, Michigan
In a judicial lien, when the court decides that the debtor owes a certain amount to the creditor, a lien can be placed on the debtor’s property, in which case the creditor gets partial ownership of the property.
Michigan law gives creditors five years to collect the debt. If you cannot pay the full amount, then the period can be extended. During this time, interest accumulates on the amount, and you end up paying more than the amount in the judgment. It is in your financial interest to pay the amount as soon as possible so that it does not become a financial burden.
If you are interested in avoiding a Judicial Lien in Ann Arbor, contact the bankruptcy attorneys at Frego & Associates today.
FAQs
Creditors can garnish wages, levy bank accounts, place liens on property, or seize non-exempt assets.
A lien gives creditors a legal claim to a debtor’s property, which can be sold to pay off the debt.
Lien avoidance is a legal process in bankruptcy that removes liens from property, helping debtors keep their assets.
A cramdown reduces the debt on certain properties like cars to their current value, but it cannot be used on primary residences.
Lien stripping removes junior liens from a property when the home’s value is less than the first mortgage, treating the second mortgage as unsecured debt.
Sources:
[1] What Are the Different Types of Property Liens? (n.d.). AceableAgent. https://www.aceableagent.com/blog/what-are-different-types-property-liens/
[2] Cramdowns Under Chapter 13 Bankruptcy Law. (2023, October 18). Justia. https://www.justia.com/bankruptcy/chapter-13/cramdowns-in-chapter-13/
[3] Lien Stripping Under Chapter 13 Bankruptcy Law. (2023, October 13). Justia. https://www.justia.com/bankruptcy/lien-stripping/
