Removing liens takes more than bankruptcy

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Dear Bankruptcy Adviser,
I live in Florida and had a Chapter 7 bankruptcy discharged last June. I have two liens on my home, which were filed prior to bankruptcy by junk debt collectors. Both of the original debts that led to the liens were included in bankruptcy. How do I get rid of these liens? I want to sell my home next year and move. Will these liens prevent sale?
— Tom

Dear Tom,
This is a very serious issue. In brief, the liens will almost certainly delay or prevent the sale of your home. As well, while it may be possible to remove the liens, you will need to hire a lawyer.

The main thing to understand is that liens survive the bankruptcy process unless special action is taken with the court. In your case, while your creditor debt was discharged, your liens were not. You will need an attorney, familiar with the process in your state, to remove the liens, notify the county recorders office and clear the negative marks from your property’s title. Unlike cleaning up your credit report on your own, which I discussed in a previous article, “Post-bankruptcy credit report cleanup,” clearing a lien from your title report requires legal assistance.

It’s not just “Justin the bankruptcy attorney” saying you need legal assistance. The American Bankruptcy Institute says so, too.

I’ve been assuming that the lien is of the removable kind, but not all are. If the lien is a judgment resulting from credit card debt, it may be removable if the equity in your house is not too great. If you have too much equity, then the lien might have to be paid before you can sell the property.

A mechanic’s lien, on the other hand, is not removable at all, even if you have limited equity in your home.

For example, a home repair company placed a lien on my client’s property after placing aluminum siding on the house and never receiving payment in full for the work. If my client sells the property before paying off the lien, the lien will be paid at the time of the sale and the appropriate amounts credited to the home repair company.

In your case, Tom, the best thing you can do right now is to be proactive. Do not wait until one month before you want to sell your home. Get a lawyer and start the process to remove the liens and clear your title prior to listing your home on the market.

Finally, let me congratulate you. You’re a homeowner, and you successfully received your discharge. All things considered, you’re doing quite well. Hang in there, and keep handling these financial obstacles as they come up.