What are avoidable consensual liens in a bankruptcy case?

A bankruptcy lien is a legal process in which the ownership of a particular property / properties is evidenced by a legal document and the lender can use the lien on the property for the loan. Liens are of two kinds – consensual and non consensual.

In consensual lien avoidance, the debtor can ask the legal authority to reduce or eliminate the lien of the creditor on any property in order to stop its inclusion in the bankruptcy estate. For lien avoidance Chapter 7 bankruptcy cases, there are three case types, any of the three needs to be consented to in the agreement between the creditor and debtor. Delay in payment will give the creditor power to lay possession on the mentioned estate / property.

These are:

• Purchase Money Security Interests

Lien avoidance Chapter 7 bankruptcy law states that if the debtor faults on paying secured loans like mortgages and auto loans, the creditor can lay possession over the property. This cannot be removed or eliminated.

• Non – Purchase money Security Interests

Lien avoidance Chapter 7 bankruptcy laws states that loans secured through items that the debtor already owns becomes the collateral, in the form of non-posessory loan. If the collateral is exempted, the nonposessory loan can be eliminated.

• Possessory Loan

This is obtained when the lender is given the collateral in exchange for the loan. This cannot be eliminated by Chapter 7 bankruptcy rule.

A debtor needs to know thoroughly about avoidable and non-avoidable liens in bankruptcy case before progressing with the case.