The debtor’s authority to avoid particular liens on their assets is one of the most powerful devices in the bankruptcy toolbox for achieving a truly “clean slate” in bankruptcy.
The general rule establishes that “liens transfer through bankruptcy uninfluenced by the discharge”.
Bankruptcy discharges only eliminate the individual liability of the debtor. When the debtor’s property is additionally liable for a debt, that lien is going to remain attached to the property.
Following the bankruptcy, the creditor retaining the lien can implement the lien towards the property, however, cannot obtain any deficit from the debtor that has a discharge.
That is, unless the lien is prevented.
Therefore, what liens are able to be avoided and through what circumstances?
Liens That Hinder Exemptions
Liens that are attached to assets that the debtor might claim exempt could be avoided to the degree the lien diminishes (or eats away at) the worth of the exemption.
Lien avoidance is available through both Chapter 13 and Chapter 7 bankruptcies.
What Is Exempt?
2 different types of liens that hinder exemptions can be avoided.
- Judicial lien (such as a garnishment or a judgment), or
- A non-possessory, non-purchase capital security interest in household wares or trade tools.
Tax liens (statutory one, not judicial ones) are not avoidable in Chapter 7 even if they hinder exemptions; tax liens are able to be avoided in Chapter 13 to the degree the lien is upwards of the asset’s worth.
Is The Lien a Non-Possessory, Non-PMSI?
This awkward phrase describes the usual finance company lien in which the borrower vows their household wares, appliances, jewels, etc. to the lender.
These liens are taken by the lender, not due to those items having enough value for repaying the loan, but due to the jeopardized loss of those items intimidates borrowers.
These liens are able to be avoided when the lien attaches to household wares, clothes, jewels, pets, and musical instruments, trade tools or health aids that are professionally prescribed.
Action Required to Avoid a Lien
For avoiding liens, the debtor is required to file a motion setting up all of the statutory factors that authorize them to avoid the lien, then serve the motion to the creditor whom lien is to be avoided. 11 U.S.C. 522(f).
Many courts necessitate a hearing. Others are going to bypass a lien if the creditor impacted doesn’t contest it on a timely basis.
Avoiding The Involuntary Transfer of Exempt Property
Bankruptcy regulations take the idea of guaranteeing the debtor the right to exempt assets a little further and enable the debtor to reclaim assets that a creditor has taken ownership of prior to the bankruptcy being filed.
If the debtor could have claimed that asset(s) was exempt, should it not have been garnished and the transfer happened within ninety days of filing the bankruptcy, the debtor can take it into litigation in the bankruptcy court to reclaim the property. 11 U.S.C. 522(h).
Dar-Liens Offers Lien Processing and Filing in Arizona
Dar-Liens Offers Processing and Filing of the following types of Liens: Pre-Liens, Notices to Owner, Medical Liens, Construction Liens, Mechanics Liens, HOA Liens, 20 Day Preliminary Lien Notices, and more.
