When you file for bankruptcy, you’re submitting for relief in the debts you have accumulated. But that only takes care of the debts. Should you take royalties into bankruptcy, they’re treated differently. For instance, you take a lien on your home as collateral in case you default. That is treated differently than if you have other liens against your property. There are ways to get rid of exemptions, however it depends on your situation and the level of equity in your home.
Foreclosure and Liens
There is a gap between taxation and liens in the bankruptcy procedure that is important to understand. If you’re in foreclosure and you go through bankruptcy, the automatic stay you receive puts off the foreclosure until after you’re discharged. When you’re discharged, you’re released from your obligation to pay the debt. But that does not necessarily mean the lien on the home, or some other liens attached to the home, are removed. Thus, even in the event that you eliminate the debt, then you might still lose the home. If there are liens from some other debts attached to the home, your duties depend on the type of lien.
Homes with No Equity
If your home has little to no equity and you go through the Chapter 7 bankruptcy procedure, chances are great that you will get rid of the home, which will get rid of the lien on the property. Additionally, it means there is a good chance you can have some other liens removed, according to Bankrate.com bankruptcy adviser Justin Harelik. Too little equity means that your trustee likely would not earn enough money off the sale of the home to repay creditors. If that is the case, Harelik recommends consulting a lawyer that can help you with the procedure for eliminating liens, including filing paperwork with the county tax office and submitting to have the mention of the lien removed in the house’s title.
Homes with Equity
If your home has equity, then there is a chance that your bankruptcy trustee might use the selling of the home to repay any liens or that it might be completely exempt. It is dependent on the level of equity and if you bought the home. If you have purchased the home within 1,215 days of filing for bankruptcy, your exempt equity is limited to $125,000. If you do not fulfill the time qualification, or you have more equity in your home than the limit, you might be forced to sell to repay lenders. You would still receive your exempt amount after the purchase, after your secured creditors are paid.
Perfection
Bankruptcy trustees have to repay debt in the order of bonded debt, and then unsecured debt. One way a creditor can have their lien considered first is by optimizing the lien. To do so, the creditor must record the lien with the county tax office, even whether it’s a mortgage, or even together with the state’s secretary of state, if it’s personal property. If your creditor has not perfected their lien against you, there is a chance that the trustee could throw the lien out during the bankruptcy procedure, if there is not enough money to pay off the lien.
Tax Liens
Some liens are extremely tricky to remove, which includes liens associated with taxes. Typically, money you owe the government is not dischargeable in a bankruptcy. If you have a tax lien from the property, you’re stuck with it. If you filed Chapter 7 and also you fulfill several criteria, you can have the lien removed. The lien cannot be against your home, can’t be caused by fraudulent activity or tax evasion, cannot be associated with taxes less than two years until you filed, must have been due at least three years ago and have to have been assessed 240 days before you filed.