Chapter 7 Lien Avoidance

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What is a Lien?

A lien is a type of security interest that a creditor may place on an item of property, either real or personal.  The lien allows the creditor to obtain possession of the property if the debtor has been unable to keep up with payments.  Liens are usually implemented in situations involving loans for real property such as a home or condo. 

Most liens arise through an express contract between the debtor and the creditor. That is, the debtor agrees to grant the creditor possession of their property for the purposes of fulfilling the debt obligation in the event that the debtor fails to pay off the debt.  Liens can also arise through operation of law, or through a court order (judicial lien).

What Types of Property Does a Lien Attach to?

Liens can attach to several different types of property:

What is Chapter 7 Lien Avoidance?

Filing for Chapter 7 Bankruptcy is a common way for persons to remove some or all of their debt.  This is because filing for Chapter 7 bankruptcy often allows a person’s debts to be “discharged”, or forgiven. 

Under Chapter 7 bankruptcy laws, not all debts may be discharged; however, certain types of liens may be dischargeable.  Thus, “Chapter 7 Lien Avoidance” refers to the process by which a lien may be discharged in connection with a chapter 7 bankruptcy filing.  Lien avoidance allows the lien to be “lifted” from the property, with the result that the debtor retains possession of the property in question. 

The most common type of lien that is discharged under Chapter 7 is a judicial lien.  A judicial lien is a lien that arises through a court order issued by a judge.  In order to have a judicial lien discharged, the person filing for bankruptcy must also file a “Motion to Avoid Judicial Lien” when filing their bankruptcy papers.  There are various eligibility requirements for this motion, which may vary by region.

Another type of lien that can be dismissed through a Chapter 7 bankruptcy proceeding are liens for “non-possessory, non-purchase” money interests in household items or tools related to certain trades.  These are specific property items that are of interest to the creditor due to their unique nature, rather than their connection with debt satisfaction. 

What Happens to Liens in Chapter 7 Bankruptcy?

Liens usually survive Chapter 7 bankruptcy and if you stop making payments on a secured debt after bankruptcy, the lender can repossess the collateral. The lender cannot due you for the deficiency because your personal obligation for the debt that is owed was discharged in the bankruptcy.

A secured debt is treated in two different ways in Chapter 7 bankruptcy:

What are Some Other Ways to Obtain Lien Avoidance?

Besides obtaining Chapter 7 Judicial Lien avoidance, there are a few other ways to avoid a lien:

Again, these options involve the risk that the debtor might lose their property.  However, lien avoidance may often have better credit consequences than simply allowing the lien to be imposed on the property.

What if I Have a Dispute Over a Lien?

Lien disputes can usually be resolved by examining a contract that may have been formed between the debtor and the creditor.  The lien agreement will list important information such as dates, the parties to the agreement, and the conditions for enforcing the lien. 

If the lien in dispute is a judicial lien, this may require further hearings to determine whether the person is eligible for chapter 7 lien avoidance.  This can involve submitting additional evidence like property documents, tax documents, and bank statements.

How Can a Lawyer Help With Chapter 7 Lien Avoidance?

Chapter 7 Lien Avoidance laws have recently been subject to many changes in light of the current economic conditions.  If you need assistance with chapter 7 lien avoidance, you may wish to contact a bankruptcy lawyer in your area.  A qualified attorney will be able to help you file the required motions and forms for lien avoidance, and can assist you in preparing the necessary documents.  Also, if you have a private dispute, your lawyer can represent you during the formal lawsuit proceedings.  

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Last Modified: 08-25-2015 12:33 PM PDT

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