You might have heard that bankruptcy law treats different types of debts in different ways. This certainly applies to recorded liens. Lien avoidance during bankruptcy refers to eliminating or reducing these liens. However, lien avoidance does not occur automatically. You’ll need to inform your bankruptcy lawyer of all of your liens. He or she can determine whether you may be eligible for lien avoidance.
Understanding the Types of Liens
Judgment liens, nonpossessory, non-purchase-money liens, and nonconsensual liens may all be avoided in bankruptcy. A judgment lien is created when a plaintiff wins a civil lawsuit against you and the judgment is recorded against your property. Nonconsensual liens are any liens that a creditor records against your property without your agreement. These can include judgment and tax liens, as well as a couple of other less common liens. Nonpossessory, non-purchase-money liens are those that are recorded against property that you retain possession of and for which you used property you already owned as collateral, rather than borrowing to purchase collateral. If the lien involves a security interest, this means that the lien was the result of a voluntary agreement between you and the creditor, rather than an involuntary action like a tax lien.
Not all types of liens may be avoided in bankruptcy and some of those that can be avoided might only be partially avoided. Whether or not you can successfully avoid your lien depends on the particulars of your situation. For example, nonconsensual judgment liens may be avoided under the following circumstances:
- A money judgment issued by a court created the lien.
- You are allowed to claim an exemption for some or all of your equity in the property.
- The existence of the lien would cause the loss of the exempt equity.
The bankruptcy lawyers of Cutler & Associates, Ltd. will carefully review your financial situation to recommend the most effective course of action for you.