The Bankruptcy Code allows a debtor to “avoid” a judicial lien to the extent it impairs a debtor’s exemption in their property. For example, suppose you own a house in Buncombe County worth $150,000, and have a mortgage with a principal balance of $115,000. That means you have $35,000 in equity.
If a credit card company sued you for $35,000, was awarded a judgment against you, and filed the judgment in Buncombe County, they now have a judicial lien against your house for the entire $35,000. Your equity is now threatened by the judgment, meaning you would have to pay the judgment in order to sell the house.
By North Carolina law, you are allowed a $35,000 ($70,000 for couples) exemption for equity in your home. Through bankruptcy, we could challenge the judicial lien with a motion to the court. Just like that, the lien would be extinguished, and you would then be able to sell your house and keep your $35,000 in equity.
The bottom line is that people are better off filing before a judgment is recorded. However, judgments can be extinguished if care is taken to protect a client’s exemptions. Please let me know if you have any questions about judgments or other bankruptcy issues. I would be happy to help.
