Voluntary Liens

• A voluntary lien is a lien that you consent to being placed on your home. The most common types of voluntary liens are purchase money mortgages, refinances and home-equity loans or home equity lines of credit. A voluntary lien means you have agreed to give a creditor a lien on your home, and the creditor has the right to foreclose on your home if you don't repay the underlying loan obligation. Voluntary liens are not subject to discharge in Chapter 7 bankruptcy.
  
  

Involuntary Liens

• A Chapter 7 bankruptcy can, under the right circumstances, eliminate or help you avoid involuntary liens on your home. The most common type of involuntary lien that Chapter 7 can help eliminate is a judgment lien or, in very narrow circumstances, a tax lien. Both of those types of liens are placed on your home by a creditor who is attempting to enforce a debt, and you do not consent to that lien being placed on your home.
  
  

Homestead Exemption

• Even involuntary liens are not always eliminated by Chapter 7 bankruptcy. You must calculate whether your home equity is protected by Indiana's homestead exemption. The homestead exemption protects your home from liquidation in Chapter 7 bankruptcy. You may be able to avoid an involuntary lien on your home if the total value of your home is less than the sum of the homestead exemption plus all voluntary liens on your home. The homestead exemption in Indiana is $15,000.
  
  

Motion to Avoid

• To avoid an involuntary lien on your home as part of your Chapter 7 bankruptcy, you will have to file a separate motion requesting avoidance of the involuntary lien. The judge will review your home equity, your total voluntary lien amount and your claimed homestead exemption to determine whether the motion is appropriate. If the motion is appropriate, the judge will enter an order avoiding the involuntary lien on your home, which essentially means the lien is eliminated because the creditor has no right to enforce the lien.