What to Know about a Bank Lien and Your Chapter 7 Bankruptcy
Transcript:
Hi, Matt McArthur here at Clear Counsel Law Group. I'm here to answer another question that's been submitted to our office. The question was, "Can a bank place a lien on my property after a Chapter 7 discharge?"
Now I'm going to make a couple of assumptions here with respect to this question, and the first assumption I'm going to make is that this was a debt that was included and noticed and part of the Chapter 7 bankruptcy process. Assuming that this was a dischargeable debt that was listed in an individual's Chapter 7 bankruptcy, the answer to the question is no. A lien cannot be placed on your property after a discharge has been entered by the court.
The reason being is there's something called a discharge injunction that goes into place upon the receipt of Chapter 7 discharge. The discharge injunction prevents a creditor from collecting on any debts that were included as part of the bankruptcy process and discharged at the end of the Chapter 7 bankruptcy. Placing a lien on your property that is related to this debt that was included in the bankruptcy isn't an action to collect against the debtor. That action is a violation of the discharge injunction. Has it ever happened where a creditor has attempted to collect on a debt after filing bankruptcy? Yes. It can happen for a number of reasons; perhaps the creditor's failed to take note of the notice that they received, perhaps they weren't listed in the bankruptcy, there can be a number of reasons why they may not have honored the discharge injunction.
That being said, once the discharge injunction is in place, it's something that needs to be obeyed and a creditor that is found to be in violation of the discharge injunction can be subject to potential liability in the form of court sanctions, attorney's fees, damages, et cetera. It's a very powerful tool within the bankruptcy process that prevents future collections actions against debts that were already wiped out.
One note that I want to make about liens and Chapter 7 bankruptcies, is typically speaking if a lien is already in place as the result of a debt and then the lien does not necessarily go away with the bankruptcy discharged. Think of a car loan for example, or a home mortgage. By signing up for a home mortgage, signing a promissory note and executing a deed of trust or a mortgage, you are granting the lender a lien on the house. Filing for Chapter 7 bankruptcy would eliminate any personal responsibility to pay on the house, but if you want the lien removed continued payments under the contract terms would need to be made in order to satisfy the lien and make it go away.
The bankruptcy discharge itself does not wipe out the lien. What this allows an individual to do is if for example they wanted to keep their house moving forward after bankruptcy, the they could, as long as they remain current on their monthly payments, they could continue to pay on their mortgage and eventually at the end of the mortgage term when all payments have been made, title would then be transferred to the debtor or the individual making the payments and they would be the sole owner of the house free and clear.
If they couldn't ever make the payments down the road before the completion of the mortgage payments had run their course, then they could walk away from the house no strings attached and the bank couldn't ever go against that person personally to collect against the debt, so that would mean wage garnishment, bank levees, other types of collection actions. They could however, still go after the house, because their lien is in place regardless of whether there was a discharge or not.
It's kind of a lot of information to take in and I know it can be very confusing so if you are confused about liens and how it relates to a bankruptcy please come in and see me, I'll make sure to take the time to walk you through the process and how it relates to your particular situation and make sure that you're feeling comfortable with the different options that may be facing you that you may have to take going forward.
Please come and see me, Matt McArthur, Clear Counsel Law Group, and I'll get you set to move forward.
