Judgment Liens in Pennsylvania Bankruptcy: Can a Judgment Lien on Your Home Be Removed?

Short answer: Sometimes. Federal law lets a person who files bankruptcy ask the court to avoid a judicial lien (the kind a creditor gets by recording a money judgment) to the extent the lien impairs an exemption the person could otherwise claim in the property, 11 U.S.C. § 522(f)(1)(A). Whether a particular judgment lien on a particular home qualifies depends on the home's value, the other liens on it, the exemption available, and the kind of debt behind the judgment. An attorney can confirm how this applies to your case.

How a judgment becomes a lien on a Pennsylvania home

A lien is not automatic when someone sues you. Under 42 Pa.C.S. § 4303(a), a money judgment of a court of common pleas becomes a lien on real property when it is entered of record in the office of the clerk of the court of common pleas of the county where the property is situated. In most Pennsylvania counties that office is called the prothonotary, and it keeps the judgment index. Under Pa.R.C.P. 3023(a), as published in the Pennsylvania Code, a judgment entered in the judgment index creates a lien on real property in that county, title to which is recorded in the name of the person against whom the judgment is entered, and under Rule 3023(c) the lien continues for five years from entry unless it is discharged sooner or revived.

Judgments from a magisterial district judge work in two steps. Under 42 Pa.C.S. § 1516, such a judgment does not operate as a lien on real property until a transcript is filed with the clerk of the court of common pleas in the county where the property is located, and no transcript may be filed until 30 days after the magisterial district judge enters final judgment. So a debt collection judgment from the local district court may or may not have become a recorded lien on your home yet. A title search or a look at the county judgment index shows what is actually recorded. For local help, see Dauphin County or Cumberland County if the property is there.

The federal tool: avoiding a judicial lien under § 522(f)

Section 522(f)(1) says that, notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent the lien impairs an exemption to which the debtor would have been entitled under subsection (b), if the lien is a judicial lien, other than a judicial lien that secures a debt of a kind specified in § 523(a)(5). Section 523(a)(5) concerns domestic support obligations, so a judgment lien securing support is outside this tool.

The statute defines “impairs” with a three-part sum in § 522(f)(2)(A). A lien impairs an exemption to the extent that the sum of (i) the lien, (ii) all other liens on the property, and (iii) the amount of the exemption the debtor could claim if there were no liens on the property, exceeds the value the debtor’s interest in the property would have in the absence of any liens.

Illustration only (not actual figures): suppose a home is worth $100,000, a mortgage is $80,000, and a judgment lien is $10,000. If the applicable exemption is represented by “E,” the test adds $10,000 + $80,000 + E and compares it to $100,000. The larger E is, the more of the judgment lien the formula treats as impairing the exemption. The actual exemption amount depends on which exemption system applies; see Pennsylvania bankruptcy exemptions for the current figures rather than relying on the example. Under § 522(f)(2)(B), if there is more than one lien, a lien that has been avoided is left out when the same calculation is run for the other liens, which is why the order of liens can matter.

The U.S. Supreme Court has read the statute’s “would have been entitled” wording to mean the test asks about the exemption the debtor would have had but for the lien itself. See Owen v. Owen, 500 U.S. 305 (1991), which also treated federal and state exemptions alike for this purpose.

How the request is made: Rule 4003(d)

Lien avoidance is not automatic when you file. Under Fed. R. Bankr. P. 4003(d)(1), a proceeding under § 522(f) to avoid a lien or other transfer of exempt property must be commenced by a motion under Rule 9014 or, in a Chapter 12 or Chapter 13 case, by serving the plan on the affected creditors in the manner Rule 7004 provides for a summons and complaint. Under Rule 4003(d)(2), a creditor may object to a § 522(f) request by challenging the validity of the exemption the lien is said to impair. If the court grants the motion, how the order is reflected in the county records is something your attorney will check.

Lien avoidance versus “lien stripping” in Chapter 7 and Chapter 13

People use “lien stripping” for several different things, and they are not interchangeable.

• Judicial liens that impair an exemption (this page’s main topic) are addressed by § 522(f), which is available in either chapter, subject to its terms.
• Chapter 7 and the § 506(d) argument. Section 506(a)(1) treats an allowed claim secured by a lien as a secured claim to the extent of the value of the creditor’s interest, and § 506(d) says that to the extent a lien secures a claim that is not an allowed secured claim, the lien is void, with listed exceptions. In Dewsnup v. Timm, 502 U.S. 410 (1992), a Chapter 7 case, the Supreme Court held that § 506(d) did not allow the debtor to “strip down” the creditor’s lien because the claim was secured by a lien and fully allowed under § 502. The Court noted that it was not convinced Congress meant to depart from the pre-Code rule that liens pass through bankruptcy unaffected. In plain terms, a Chapter 7 discharge generally ends your personal liability but does not by itself remove a lien that is not avoidable under a specific provision such as § 522(f).
• Chapter 13 and wholly unsecured junior mortgages. Section 1322(b)(2) allows a plan to modify the rights of holders of secured claims, except claims secured only by the debtor’s principal residence. In In re McDonald, 205 F.3d 606 (3d Cir. 2000), the Third Circuit, whose decisions are binding in Pennsylvania federal courts, held that a wholly unsecured mortgage is not subject to the antimodification clause in § 1322(b)(2). That decision concerned a junior mortgage, not a judgment lien, and the court noted open questions such as the valuation date. Whether it helps in a given case turns on valuation and lien priority.

Common fears and misconceptions

• “Filing bankruptcy automatically erases the lien.” No. A discharge and lien removal are different things, and Dewsnup is the reason many people are surprised after a Chapter 7 discharge.
• “Any judgment against me is a lien on my house.” Not necessarily. See the recording rules above.
• “I will lose my home if the lien stays.” A lien is a claim against the property, usually relevant when you sell or refinance, or if the creditor enforces it. What is at stake depends on equity and priority. See keeping your house in bankruptcy and what to do when your home is worth less than you owe.
• “Chapter 13 is always needed to deal with a lien.” Not always. Rule 4003(d) contemplates a motion in any chapter. The choice between Chapter 7 and Chapter 13 depends on much more than one lien; see Chapter 13 vs. Chapter 7.

Mistakes to avoid before filing

• Assuming a judgment is or is not recorded without checking the county records.
• Selling, refinancing, or transferring the home to relatives without legal advice. A pending lien problem is a reason to ask first, not to move title.
• Ignoring a pending lawsuit. Deadlines to respond in state court may run before any bankruptcy case is filed. See wage garnishment in Pennsylvania for other collection steps that can follow a judgment.
• Guessing at property value. Because the § 522(f)(2)(A) formula depends on value, a rough guess can change the result.
• Overlooking that some judgments, such as those securing domestic support, are outside § 522(f)(1)(A).

What to expect at a consultation

Bring the judgment paperwork (the case number and county), the most recent mortgage statement, any property tax assessment, and a list of other recorded liens if you have one. A bankruptcy attorney will typically look at what is actually recorded, the property’s value, which exemption system you would use, the kind of debt underlying each judgment, and whether a motion under Rule 4003(d) is realistic.

Call (717) 724-7503 or schedule a consultation to talk through your situation.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

Sean P. Quinlan, Esq., Quinlan Law Group, Camp Hill and Harrisburg, Pennsylvania.

This page is general information about Pennsylvania and federal bankruptcy law, not legal advice for your situation, and reading it does not create an attorney-client relationship. This is attorney advertising. Deadlines and outcomes depend on your facts; talk to a licensed attorney before relying on anything here.