Chapter 7/Lien Avoidance

[Csthreatt]

What is the name of your state? CA

I lost a judgement and the lawyer filed a lien against my home. If I file bankruptcy(chp 7), what is the possiblity of the judge granting a lien avoidance? My mother and I live there and she has been paying the mortgage for years. What type of proof should I bring to court to increase my chances of getting a lien avoidance?

[AttorneyOney]

You can avoid a lien under Code section 522(f) to the extent it impairs an exemption, so your first question has to be how much equity do you have in the home.

For example, suppose the value of your interest in the house is $300K, that the judgment lien is for $25K, and that the value of all other liens (including the first mortgage) is $100K. Suppose further that your California homestead exemption is $50K. You add 25 + 100 + 50 to get 175. Since that's less than 300, you wouldn't be able to avoid any of the lien because it doesn't impair your $50K exemption. Change the facts to make the house worth just 150, and you'd be able to avoid the whole lien. If the method of doing the calculation seems weird, check out Code section 522(f)(2)(A).

So: the proof you need is (a) payoff amount of the first mortgage and value of all other liens, and (b) solid appraisal on the house, as low as you can justify with a straight face. [Well, your honor, the house would be more valuable if it weren't built squarely across the San Andreas Fault...]

[Csthreatt]

I thank you for the reply. Looks like alot of valuable information. This is just the information I needed.

Thanks Again Attorney0ney.

Question. Do I really need a lawyer to file bankruptcy? And also I read something stating, when you are in court for a bankruptcy, all of your creditors come to court and question you. Also, during the questioning, your lawyer is not allowed to object. Is this true?

[AttorneyOney]

People -- including experienced attorneys -- think highly of the NOLO book on ch. 7. The biggest benefit of an attorney is issue spotting, and (unfortunately) you can't know that you're missing an important issue without having a lawyer point it out to you. A second benefit is that the attorney understands all the procedural rules that baffle normal mortals. Bankruptcy court is much worse in this respect that other civil courts, in that the clerks WILL NOT ANSWER questions about law or procedure. In your case, since you will be wanting to avoid a lien, I would suggest hiring an attorney. It might cost you as much as if the attorney had filled out your petition (a normal service of a bankruptcy attorney) because he will want to independently review your filings to make sure no amendments are needed, etc.

You may be thinking of a section 341 "meeting of creditors". Your trustee officiates, and the judge is specifically excluded from attendance. Creditors seldom come, even though it's called a meeting "of creditors". They may, and they can ask questions that affect the estate as a whole ("Where did you hid the Hope Diamond?") but not necessarily questions about their own debt. The trustee usually has a bunch of debtors he has to interview in a given half hour or hour and can only spend about 10 minutes on your case, so not much questioning can go on.

There is also something called a "Rule 2004 Examination", which a creditor can do after getting permission from the court. This is like a deposition, and you are therefore pretty much required to answer any question put to you. These exams will cost the creditor (not you) a few hundred dollars, so no one is going to do one unless they're pretty sure that you're hiding something.

If you've been completely candid in your schedules, you have nothing to fear either from the 341 meeting or from any 2004 exam that might occur later.