When determining how a debt will be affected by discharge in bankruptcy, it is important to determine whether or not a debt is in personam or in rem. “In personam” means “against a person.” With a few exceptions, in personam liability is discharged in bankruptcy. For example, credit cards and medical bills are debts against a person, and both are uncollectable against the debtor once they have been discharged in bankruptcy. “In rem” means “against property.” In rem liability is uncollectable against a person who has been discharged in bankruptcy, but the debt can still be collected by an action against property that is encumbered by a lien. For example, mortgages and car loans are discharged against the debtor in bankruptcy, but the debt can still be collected through foreclosure or repossession against the house or the car.
There are some situations where in rem liability can be turned into in personam liability, which will allow debtors to discharge a debt while not losing secured property to foreclosure or repossession actions. For example, judicial liens can be removed by filing a motion in bankruptcy court sometimes called a “Motion to Avoid Lien.” Additionally, in some cases a bankruptcy judge can remove a second mortgage in a process called “lien stripping.” Lien stripping removes the lien on the property, so that the debt is no longer secured. These processes require that a certain set of facts be present in the case, and prospective bankruptcy filers should consult with an experienced bankruptcy attorney to determine whether or not a judicial lien can be avoided or a second mortgage stripped.