Bankruptcy could be a way to avoid liability in a civil judgment. However, this will depend on whether or not the underlying debt is dischargeable. While there isn’t a guarantee that you can get rid of the debt via a bankruptcy, individuals may be able to avoid the lien in some cases.
Determining Whether a Debt is Non-dischargeable
One of the first steps to take is to figure out if the underlying debt is dischargeable or non-dischargeable. Some debts are automatically deemed non-dischargeable, including child support or spousal obligations, post-petition HOA and condo fees, student loans, injury or death resulting from a DUI, and debts to government entities such as fines and taxes.
Even if debt doesn’t fall into the non-dischargeable category, individuals may still need to take other steps. There are other types of debts that may avoid discharge if the creditor manages to file an objection.
Creditors may be able to file an objection and successfully identify debt as the following, making it non-dischargeable:
- injury resulting from a malicious or willful act
- fraud committed to obtain goods, services, or money
- fraud committed while in a trusted position such as a guardian or trustee
If the debt doesn’t apply to these, debtors can discharge the lawsuit through Chapter 7 bankruptcy.
Lien Avoidance
While debtors may believe their debt is extinguishable because of its dischargeable status, this may not be the case if the lien is still attached to the person’s assets, such as a home.
Lien avoidance offers an exception to this. In cases of lien avoidance, creditors who failed to receive consent judgment from the debtor may not be able to judge the lien as non-dischargeable, as it’s removed from assets through bankruptcy.
To have lien removed from assets through lien avoidance, debtors must make sure that the lien came from an oppositional money judgment, that they have equity in the property that counts as an exemption, and that the judgment lien uses up some or all of the exemptible equity.
Debtors need to act fast and follow bankruptcy procedures to avoid a lien. This entails claiming a property as except on a Statement of Intention, followed by filing a motion with the court in a timely manner.
Taking these steps can help debtors eliminate debt through Chapter 7 bankruptcy.
