First of all, there are all sorts of liens. Simply put, a lien is the right to take and hold or sell the property of a debtor as security or payment for a debt or duty. The property we’re talking about is real estate. There are two types of liens- consensual and nonconsensual. A consensual lien is one that you agree to, like a mortgage. A nonconsensual lien is one that you do not agree to, such as a judgment.

A judgment is the end result of a lawsuit. A judgment obtained against you attaches as a lien to real estate that you own in the county in which the judgment was obtained. So, if you own a parcel of real estate in Buncombe County, are sued in Buncombe County, and lose the lawsuit the parcel will be subject to a lien in favor of the party that sued you (the “Judgment Creditor”). The only exception is if you own the real estate with your spouse as “tenants by the entireties” and your spouse was not a party to the lawsuit. In that case, the judgment does not attach as a lien to your real estate. However, it will attach as a lien to any other real estate that you own, even if you own it jointly with another person who is not your spouse.

The judgment lien will have to be paid if you sell or transfer the property. It will also usually have to be paid if you refinance your existing mortgage. The lien will survive your death and have to be paid by your heirs if they intend to retain the property. Additionally, a Judgment Creditor can execute on its judgment and force the sale of your real estate to satisfy the debt you owe to it.

A bankruptcy can change this. The formula is a bit complex, but it essentially boils down to this: if you can claim your real estate as exempt in your bankruptcy case, then you can “avoid” (i.e., strip off) a judgment lien. For example, an individual in North Carolina can exempt up to $35,000 worth of equity in a residence. So, if Jane Doe owns a home worth $100,000, has a mortgage lien of $90,000 and a judgment lien of $20,000, then she can avoid the judgment lien. This is because, without the judgment lien she would have $10,000 in equity in her home (i.e., $100,000 value minus $90,000 mortgage). She can protect up to $35,000. So, she could claim her home as exempt. This means that she will be able to avoid/ strip off the judgment lien.

Lien avoidance in bankruptcy is a complicated and fascinating subject. Please feel free to contact Kight Law if you have been sued and are concerned about a judgment lien on your property.

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The answer is no. Debt discharged in bankruptcy is not forgiven or written off. It is discharged. A bankruptcy discharge is not a taxable event. The debt that was once owed but that is now extinguished will not come back to haunt you in the form of a tax liability.

If you or your accountant have questions about this issue I encourage you to review IRS Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)”. This is the form that you will use in filing your tax returns to show that your discharged debt is not taxable income. You can find the form here:

http://www.irs.gov/pub/irs-pdf/f982.pdf

So, if you’ve received your bankruptcy discharge but received a Form 1099 take a deep breath and download Form 982. You won’t owe additional taxes because of your bankruptcy case.

In selecting attorneys for Super Lawyers™, a rigorous, multiphase process is employed. Peer nominations and evaluations are combined with third party research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis.   Super Lawyers™ inducts only 5% of the attorneys in any given state.  Super Lawyers™ Rising Stars is a special category dedicated to superlative lawyers that are either 40 years old or younger or in practice for ten years or less.

• the right to a “fresh start” from a financial perspective.
• the right to terminate creditor harassment and certain debt related law suits
• the right to discharge certain debts and lower your monthly payments on others
• the right to relinquish certain contractual obligations
• the right to retain certain property
• the right to relinquish encumbered properties and their associated liens
• the right to protect your co-signers from liability in your bankruptcy

Claiming your rights under the Bankruptcy Code can provide real and immediate benefit.  If you have more bills than you can pay, if your home-equity has become a liability, if you are facing foreclosure and creditor harassment, contact Kight Law.  We can help you understand how bankruptcy works.  If you are considering bankruptcy, please be sure to read these sections in our website:

• About Bankruptcy
• Bankruptcy Basics Video Part I
• Bankruptcy Basics Video Part II
• Bankruptcy Basics Video Part III
• Things Your Creditors Don’t Want You to Know
• Frequently Asked Questions

The U.S. economy has been in serious trouble for years.  The direct impact of the economic downturn has most firmly hit middle class America.  This crisis may become worse before inflation and property values stabilize.  Because of this, misconceptions surrounding bankruptcy are harmful.  Chances are, most of what you may have heard about bankruptcy is wrong.  In spite of what you may think you know, bankruptcy can in many  cases be the best, most practical solution for your family’s future prosperity and happiness.  While a myth is nothing more than a belief that is untrue, basing financial decisions on erroneous beliefs about bankruptcy could well lead to costly and harmful outcomes.  Creditors use the myths surrounding bankruptcy to take advantage of you.  What you don’t understand about your debt dispersal is your detriment in favor of creditors. Understanding the difference between the reality of bankruptcy and the myths that surround it may be the first most important step you make in analyzing the options before you.

Some of the most common, and most debilitating misconceptions this series of articles explores include:

• Bankruptcy and your credit rating
• Bankruptcy and your personal property
• Bankruptcy and your privacy
• Your integrity and bankruptcy
• New Bankruptcy Laws
• Asset and debt disclosure in bankruptcy
• The bankruptcy process
• Property ownership following bankruptcy
• Marriage, family and bankruptcy
• Bankruptcy and Back Taxes
• Bankruptcy Limitations
• Your ability to afford competent legal representation in bankruptcy

One of the most common misconceptions, and a favorite of creditors, is that your credit rating will be forever damaged after bankruptcy.  This doesn’t have to be the case.  For most people, wiping out poor payment histories and aging debt represents a new beginning.  If you’ve been struggling and juggling payments to make ends meet, your current credit score most likely reflects that, including late payments, high balances, collection accounts and charge-offs.  Extinguishing that kind of history through bankruptcy can cause an improvement to your pre-bankruptcy credit rating.  While it will, without doubt, impact your credit score, through bankruptcy you have the opportunity to create a fresh start and even acquire an enviable credit score with diligent financial management.

Fair Isaac, the agency that calculates your FICO score, has developed grading formulas that compare credit standings to others with similar financial situations.  So, if you file for bankruptcy, your FICO score is determined through comparison to others who have as well.  As you can see, this offers a much fairer comparison.

Myth:  You will never get credit again

The simple truth is that bankruptcy removes debt.  Less debt elevates you to a position to handle more credit. A minimized debt load makes your ability to pay more attractive to credit card companies, banks and other lenders.  In fact, you will probably start receiving credit card offers in the mail in a seemingly short period of time.  Of course, lenders will want higher interest rates and more money down at firts.  Doing things to ensure good marks on your credit rating, like paying your bills on time, start saving money and keep a steady job, your credit rating will climb over time.

Generally, if you are unable to re-establish a good credit rating in 2-4 years, its probably not because you filed bankruptcy.  In most cases, this outcome is because something else happened after filing bankruptcy.  Even in this elementary stage of you investigation, we will offer a word of caution about re-establishing debt in the process of re-establishing credit.  While they are sometimes mutually exclusive, effective management of debt accumulation is the best tool for creating enviable credit scores.

Myth:  Bankruptcy will destroy your credit for years

Without a doubt, bankruptcy will have an effect on your credit rating.  While we’ve explained how bankruptcy can have a positive impact on your credit rating, if the impact is negative, the chances are very good that it won’t cause that much of a drop.  A generalized statement would be that those individuals and families seeking relief through bankruptcy are already suffering deteriorating scores, which are likely to drop further without that relief.

Don’t confuse the fact that bankruptcy will be reported on your credit score for up to 10 years with the idea that it will have a continuous negative effect for that long.  And in the beginning, it is generally unlikely that you will have much credit to damage anyway.  Because of the FICO score process, you will have the opportunity to rebuild your credit score amongst a group of other individuals that have also filed bankruptcy.  So, really, future good credit is really up to you and how you manage debt, and less about the fact you’ve previously filed bankruptcy.

Bankruptcy and the Bad Credit Cycle

So, we’ve mentioned before that if your reviewing information about repairing bad or declining credit, you’re probably not the proud owner of a 750 credit score.  This is one of the most foundational reasons as to why bankruptcy is such a good option for so many Americans today.  You are probably aware that your credit rating affects everything from utility deposits to credit card and loan interest rates.  Doing nothing to reverse the cycle of credit decline will only cause the matter to worsen.  Federal bankruptcy laws are configured to stop the credit aging process of outstanding and delinquent debt once bankruptcy has been filed. Its always preferable to repay your debt as originally agreed, but sometimes that can’t happen.  In those situations, we are here to help.