Bankruptcy

Invalidating Liens

As stated above liens attaching prior to the filing of the bankruptcy  petition still encumber the debtor’s property after the debtor’s discharge of personal liability unless:

 

1.  The agent verifies that there is notice in the bankruptcy file to the specific lien creditor of the debtors motion to discharge the lien, and either no objection has been entered, or after a hearing the bankruptcy overruled the objection, and;

2.  a. The Bankruptcy Court entered an order avoiding the specific lien, or;

b. i. The Bankruptcy Court’s order of sale states the property is to be sold free and clear of the specific lien, and;

b.
ii. The Court’s order references the applicable bankruptcy code section being relied upon, and all applicable appeal periods have run.

 

All cases where liens are purported to be invalidated or discharged by bankruptcy must be referred to Regional Counsel for underwriting approval.

 

Important:  A discharge of a debtor in bankruptcy does not release a judgment lien against the debtor’s property. The discharge only acts to stop the collection of the debt against the debtor personally. The discharge does not extinguish the judgment lien and therefore, continues to attach to real property. The simplest way to remember this is:

 

 “A lien going into bankruptcy is a lien coming out of bankruptcy.”

 

A release of the judgment lien must be obtained and recorded or, an order of the bankruptcycourt to sell free and clear of the lien must be obtained and reviewed by underwriting counsel.

 

Important consideration in bankruptcy: Many actions concerning real property in a bankruptcy must be approved or confirmed by an order of the bankruptcy court. All such orders are appealable and are not final until finally adjudicated or appealed or the appeal period has expired with no appeal filed. No title insurance may be issued based on a bankruptcy court order until after an appeal is no longer possible.