If you fail to pay a debt, the creditor can seek a judgment lien through the court. With a lien on your mortgage, you cannot sell or refinance the property until the lien is satisfied. A lien also affects your credit score. Since lien holders can't force you to sell the home, you can take as long as you want to repay the debt. The longer the lien remains on your home, the more you will owe. Liens earn interest to compensate the lien holder for the wait.
Bankruptcy to Lift the Lien
Although bankruptcy discharges debt and releases your liability, it is not an automatic solution to a mortgage lien. When you file for bankruptcy, you are allowed to keep certain exempt assets. If the value of your home is lower than the equity in your home you get to keep, you can ask the bankruptcy court to eliminate the lien. If the value exceeds the allowed equity, the lien amount may be lowered to ensure it doesn't interfere with the exempt portion of your home.
Paying the Lien
If you can't remove the lien through bankruptcy, the lien must be paid. You will need to contact the lien holder to discuss paying off the debt. Try negotiating with the creditor to reach a settlement. You can also hire an attorney to negotiate with the lien holder on your behalf. The creditor may be willing to reduce the debt or knock off some of the interest and late fees. If paying the debt in full is not an option, inquire about making installment payments until the lien is paid.
Release of the Lien
After the debt is paid, you must ask the lien holder to provide you a signed, certified lien release form. Keep an official copy of the release for your own records and file the certified form at the recorder's office of the county in which the property is located. The release then becomes public record. It can take up to 30 days before the lien is lifted.
Removing a Lien From Your Credit
After satisfying the lien and recording the release, the lien will be removed from your credit report. Order a copy of your credit report from Equifax, Experian and Trans Union to ensure the lien is gone. Liens are entered under the public records section of a credit report. If the lien still appears on your report, contact the bureau to dispute the inaccuracy. You may need to submit copies of the lien release form directly to the credit bureaus.
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