Key Takeaways
- Bankruptcy can erase what you owe and still leave the lien on your home. Removing the lien is a separate step: a Motion to Avoid Judicial Lien.
- Only an involuntary judgment lien that impairs an exemption can be avoided under Section 522(f). Voluntary liens, like your mortgage, cannot.
- The test: if the judgment lien, every other lien, and your exemption together exceed the home’s lien-free value, the lien can be wiped out up to that impairment.
- Michigan’s homestead exemption starts at $30,000 (up to $45,000 if 65+ or disabled). After the court avoids a lien, record the order with the register of deeds or it can still cloud your title.
Here is what catches many Ann Arbor homeowners off guard: bankruptcy can wipe out what you owe and still leave the lien on your home standing. Erasing the debt and removing the lien are two separate steps.
Skip that second step, and a lien you thought was gone can resurface the moment you try to sell or refinance, sometimes years later. The good news is that many judicial liens can be removed, and acting early gives you the most room to work.
Below, we break down what a judicial lien is, why it matters, and how to keep one off your property in the first place.
What Is a Judicial Lien?
A lien gives the creditor the right to take a debtor’s property so the amount owed gets paid. The court may place a lien on the property so that the debt is cleared, and the creditor can take the property and sell it if the debt is not paid.
People going through bankruptcy use lien avoidance to remove a lien from their property so they do not lose it while paying back the debt.
How Do You Avoid a Judicial Lien?
Lien avoidance lets you keep your property and other valuable assets during bankruptcy and gives you a fresh start to rebuild your finances. Once a lien is avoided, that asset is no longer tied to the debt, so you can hold onto it even if the balance goes unpaid.
To avoid a judicial lien, you must file a “Motion to Avoid Judicial Lien” in a bankruptcy court.
In Michigan, lien removal (or “lien avoidance”) applies if someone is filing for Chapter 7 or Chapter 13 bankruptcy. Here’s how it works:
- A lien made with the person’s permission (a “voluntary lien”) can not be removed in Chapter 7 cases, and in Chapter 13, it only gets removed if certain conditions are met.
- A lien created by law (an “involuntary statutory lien”) can be removed by the bankruptcy trustee, but this doesn’t often happen.
- A lien from a court judgment (an “involuntary judgment lien”) can be removed by filing a Motion to Avoid Judicial Lien.
Only liens placed without the debtor’s agreement can be removed. Liens can also be removed if they block the person’s right to exemptions, like protecting their home from being taken. If a lien interferes with these protections, it can be removed.[1]
Cramdown in Chapter 13 Bankruptcy
Cramdown is a lien avoidance strategy used to reduce the amount of debt. It usually applies to investment properties and automobiles.
In this strategy, the debt is lowered to the value of the property that caused it. However, cramdowns are not allowed on your principal residence, the home you live in.[2]
Lien Stripping in Chapter 13 Bankruptcy
Lien stripping applies to real estate and comes into play when you have multiple mortgages against the same property. Depending on the value of your property, the junior lien can be discharged at the end of your repayment plan under Chapter 13.[3]
Partially Avoiding a Judicial Lien
A bankruptcy attorney can help you determine if partial lien avoidance is an option. You may have an exemption in an asset, but that exemption may not be enough to cover the entirety of the property. In this case, part of the judicial lien can be avoided.
Every bankruptcy case is different, and judicial liens are major obstacles when going through bankruptcy.
How the Motion to Avoid a Judicial Lien Works
Removing a judicial lien is not automatic. You have to show the court that the lien “impairs” an exemption you are entitled to claim, and federal law sets a specific test for that.
Under Section 522(f), a judicial lien impairs your exemption when three amounts, added together, come to more than your home would be worth with no liens on it at all:
- the judgment lien you want to remove,
- every other lien on the property, such as your mortgage, and
- the exemption you could claim if no liens existed.
When that combined total tops the home’s value, the lien is impairing your exemption and can be avoided up to the amount of the impairment.[1]
A Simple Example
Say your Ann Arbor home is worth $250,000 and your mortgage balance is $230,000. A creditor holds a $40,000 judgment lien, and you can claim a $30,000 homestead exemption.
Add the judgment lien ($40,000), the mortgage ($230,000), and the exemption ($30,000), and you get $300,000. The home is worth only $250,000. Since $300,000 is more than $250,000, the judgment lien impairs your exemption, and the full $40,000 lien can be wiped out.
Which Exemption Applies in Michigan?
Michigan filers may choose either the federal bankruptcy exemptions or Michigan’s own set. Michigan’s bankruptcy homestead exemption starts at a statutory base of $30,000, rising to $45,000 if you or a dependent is 65 or older or disabled, and the amounts are adjusted for inflation over time.[4]
The set you choose can decide whether a lien is fully or only partly avoidable, so this is a step worth reviewing with a bankruptcy attorney.
Steps to Clear the Lien
- File your Chapter 7 or Chapter 13 case and claim the homestead exemption on your property.
- File a Motion to Avoid Judicial Lien, laying out the Section 522(f) math.
- Serve the motion on the creditor, who has a chance to object.
- If the court agrees, it enters an order avoiding the lien.
- Record that order with the county register of deeds so the lien is cleared from your title.
That last step matters. Until the order is recorded, an avoided lien can still cloud your title when you try to sell or refinance, even though the court has already removed it.
What Happens After a Judgment in Ann Arbor?
With a judicial lien, when the court decides that the debtor owes a certain amount to the creditor, a lien can be placed on the debtor’s property, in which case the creditor gains a secured legal claim against the property.
In Michigan, a recorded judgment lien on real property stays in effect for five years, and it can be re-recorded once for another five-year term.[5] The judgment itself lasts longer: a money judgment is enforceable for ten years and can be renewed.[6]
During this time, interest keeps accruing, and you end up paying more than the original judgment. It is in your financial interest to resolve it as soon as possible so the debt does not become a lasting burden.
Free Consultation
If a judicial lien is threatening your Ann Arbor home, the sooner you act, the more options you have. Frego & Associates has represented Michigan homeowners for over 30 years, and the first conversation costs nothing.
Frequently Asked Questions
What Collection Methods Can a Creditor Use After a Judgment?
Creditors can garnish wages, levy bank accounts, place liens on property, or seize non-exempt assets.
What Is a Lien, and How Can It Affect Property?
A lien gives creditors a legal claim to a debtor’s property, which can be sold to pay off the debt.
What Is Lien Avoidance?
Lien avoidance is a legal process in bankruptcy that removes liens from property, helping debtors keep their assets.
What Is a Cramdown in Chapter 13 Bankruptcy?
A cramdown reduces the debt on certain properties like cars to their current value, but it cannot be used on primary residences.
How Does Lien Stripping Work in Chapter 13 Bankruptcy?
Lien stripping removes junior liens from a property when the home’s value is less than the first mortgage, treating the second mortgage as unsecured debt.
Sources
- 11 U.S.C. § 522(f), “Exemptions” (avoidance of a judicial lien that impairs an exemption). Legal Information Institute, Cornell Law School. law.cornell.edu/uscode/text/11/522
- 11 U.S.C. § 1322(b)(2), “Contents of plan” (a Chapter 13 plan may not modify a claim secured only by the debtor’s principal residence). Legal Information Institute, Cornell Law School. law.cornell.edu/uscode/text/11/1322
- 11 U.S.C. § 506(a), “Determination of secured status” (a claim is secured only up to the value of the collateral). Legal Information Institute, Cornell Law School. law.cornell.edu/uscode/text/11/506
- MCL 600.5451, “Bankruptcy; exemptions” (Michigan homestead exemption; base amounts adjusted for inflation). Michigan Legislature. legislature.mi.gov (MCL 600.5451)
- MCL 600.2809, “Judgment lien; duration; rerecording.” Michigan Legislature. legislature.mi.gov (MCL 600.2809)
- MCL 600.5809, “Period of limitations; actions to enforce a judgment” (10-year period for a judgment of a court of record). Michigan Legislature. legislature.mi.gov (MCL 600.5809)
