With a Chapter 7 or straight bankruptcy, the bankruptcy discharge cancels all listed debts, but there are some exceptions. Properties with liens specifically, have their debts discharged but the lien remains. Some liens can be eliminated if the correct steps are taken, and there are other liens that cannot be eliminated.
There are several liens that can be eliminated through a Chapter 7 bankruptcy.
These liens are:
- Non-purchase-money interests in household goods
To eliminate these liens one must ask the court to do so. There is an additional fee to include this in the bankruptcy proceedings.
There are some liens that cannot be eliminated with a Chapter 7 bankruptcy.
These liens are:
- Motor vehicle encumbrance
- Purchase money security in other goods
If one wants to keep the above items an agreement has to be entered to pay part of the debt, or reaffirmation. An agreement to pay the value of the secured consumer debts, or redemption, can also be entered. With either option the agreement has to be entered before the discharge order is signed.
It is important to understand the significance of the discharge order. If a debt is discharged, that means the creditor cannot force you to pay the debt. Creditors cannot legally file an action against you for that specific debt. Creditors also cannot continue any action they had filed against you before the bankruptcy was filed. This includes sending collections letters and harassment for any debt that was discharged with the bankruptcy. If any of the above actions do occur, you may be able to sue the creditor.
With a mortgage lien and bankruptcy, if you move out of your home with the intention of having the mortgage company take it back, and the company does not take the title, you are still legally responsible for that property. This means that if the mortgage company does not transfer the title into their name, from your name, you are still required to maintain the property so it does not violate any local, county, state, or federal law.