Is it too late to file for Bankruptcy? I’ve already been sued.
I have to file for Bankruptcy THIS WEEK. I’ve been sued, and the answer date is Monday.
Judgments and judgment liens are creatures of State law, and as such, there is considerable variance around the Country. This may also be an area of law where I think title attorneys are as ignorant as laymen.
Here’s the skinny.
No, it is not too late to file for Bankruptcy.
Calm down. Now, breathe. You have more time than you realize. We can take a little time, get this done right; and still get you the result you want.
Here is why. First of all, pending lawsuits against the Debtor are stopped — dead in their tracks — by a bankruptcy filing. The reason is an order called the Automatic Stay that goes into effect the instant a Bankruptcy case is filed. Second, that date in the Petition and Summons that you were served with? That is the answer date. If you don’t file an Answer, then a default judgment can and will be taken against you — eventually. It probably won’t happen on the first possible day, but it might happen that week. In Oklahoma once a Judgment is taken, it cannot be acted upon (i.e., a wage garnishment issue, etc.) for ten days absent some pretty extraordinary events. So, even if a judgment is taken on Monday, you still have ten days before you need to start looking over your figurative shoulder.
So, what happens if that ten days has passed, and the creditor has recorded its judgment in County records creating a lien on your home? Simple. You will pay me a little bit more money, but not a lot more. Once the Bankruptcy is filed a Motion to Avoid (or remove) the judgment lien from your homestead can be filed. It is a relatively simple procedure, albeit a bit fiddly. A motion (which is just a fancy name for a request ) is filed asking the Court to do this. It must be served on the Creditor. The Creditor is then given time to object (not likely), then in every case I’ve ever had, the Court grants the Motion and enters an Order that removes the Judgment lien from the Debtor’s home — caveat below.
Now, what happens if the Debtor owns real estate that is not his home? At that point the Debtor really, really does need to file for Bankruptcy before the judgment lien is recorded. A Motion to Avoid may only be granted to the extent that the judgment lien is impairing the Debtor’s interest in property that he can claim as exempt. I have never seen a successful claim of exemption in real estate that is not homestead — at least not using Oklahoma’s exemption statutes. Of course, filing for Bankruptcy when you own real estate that isn’t your home opens a whole ‘nother can of worms all by itself, but that is a subject for another day.
Another problem is created if you have recently moved to Oklahoma and are not entitled (according to the 2005 Bankruptcy Reform Act) to use Oklahoma exemptions. If you are using exemptions from another State (or the Federal exemptions) you may have too much equity in your home to be able to avoid the lien. That is something that you will need to discuss in detail with the attorney you hire to represent you in your Bankruptcy filing.
However, even if you own real estate that isn’t your home or you have just moved here and aren’t entitled to use Oklahoma exemptions, that does not mean game over. You do still have options, and with a little bit of flexibility you may still wind up with the result that you want. Those situations, though, get very fact specific very quickly.
Oh, and something that every title attorney should know — but too many of them don’t. A judgment only becomes a lien when it attaches to real estate, and a judgment cannot attach to real estate after the Bankruptcy is filed and discharged. So, if you file for bankruptcy and don’t own any real estate, you can’t avoid the judgment liens — because there aren’t any, but the judgments become toothless when the discharge is entered. So, if you go to buy a house a few years after the Bankruptcy, those old judgments cannot attach to your new house — no matter what the title company may say.
So, if you are going to buy a new house, and the title company is very concerned that something wasn’t done right in your Bankruptcy — call your Bankruptcy attorney sooner rather than later. The Title company is probably wrong, but if they aren’t your Attorney will need a little time to fix it.