Avoiding Mortgages and Judicial Liens Through Bankruptcy in Ohio

Bankruptcy Law

Many individuals who file for Chapter 7 or Chapter 13 bankruptcy protection in Ohio own real estate. They often fear that they could lose their real estate through the bankruptcy filing. With liberal protections (exemptions) in place in Ohio, bankruptcy filers barely ever lose their real estate through a filing. Instead, they can actually use the bankruptcy process to strip judicial liens and even mortgages secured against their real estate.

Chapter 7 bankruptcy is more conservative than Chapter 13 bankruptcy in regards to what type of liens may be removed, or stripped, from real estate. Chapter 7 bankruptcy, through the filing of Motion to Avoid, can strip judicial liens filed by creditors with their respective county recorder. These liens often prevent individuals from refinancing a mortgage or selling real estate to someone else. Therefore, the Motion to Avoid can be extremely beneficial.

In order to strip the lien, the lien must be completely unsecured. To show the judicial lien is unsecured, the equity in the real estate must be evaluated. First, you must ascertain the value of the real estate. Then, you can reduce the equity in the real estate by the amount due on the mortgage or any other liens. Next, you should apply the bankruptcy protection, or exemption, for real estate in Ohio, which is valued at over $100,000.00 per person. Therefore, the judicial liens are almost always unsecured. By filing the Motion to Avoid, the lien will be removed from the real estate.

Chapter 13 bankruptcy filing can go a step further in Ohio: it can avoid secured second mortgages held against real estate. The process to avoid second mortgages follows the same procedure as avoiding judicial liens. However, it does not consider the bankruptcy exemption. Instead, through the Motion to Avoid, the debtor must simply show that the real estate is worth less than the amount due on the first mortgage. If the real estate is shown have no equity, then the second, junior mortgage can be avoided by the bankruptcy filing.

As you can see, the bankruptcy filing is extremely valuable to cleaning up the liens secured against the filer’s real estate. It gives them much more flexibility going forward to refinance or sell the real estate. Additionally, in the case of the Chapter 13 bankruptcy, the Motion to Avoid can make the real estate more affordable because the debtor will not be obligated to pay on the second mortgage any longer. Therefore, all bankruptcy filers who own real estate should consult with an attorney to evaluate all options available and accessible in Ohio.