Lien Avoidance Techniques in Chapter 7 Bankruptcy

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Lien avoidance is not really a “technique” of any kind; rather it is a legal process where the debtor asks the bankruptcy court to “avoid” or reduce or eliminate creditor liens on any property that is exempt from inclusion in the debtor’s bankruptcy estate.  That is the creditor can be stopped from taking anything the bankruptcy court is allowing the debtor to keep such as a portion of the ownership in his or her home, clothing, household furnishings, social security payments, and other necessities such as the debtor’s car.  Federal bankruptcy courts are prohibited from avoiding a judicial lien pursuant to a divorce debt that was intended to provide financial support of marital children or former spouse.

Avoidable Consensual Liens

A creditor lien on a loan of any kind with a security interest, or a consensual secured loan such as a mortgage or a car loan, can only be avoided under certain circumstances in Chapter seven bankruptcies.  The secured loan must be a “nonpossessory, nonpurchase-money security interest” loan to be eligible for lien avoidance.  Examples of this type of avoidable lien loans would be home equity loans, or personal loans where the borrower’s car is the collateral.  To be eligible for lien avoidance the collateral must be something that is exempt from the bankruptcy estate.  A security interest lien may not be removed from real estate or from an automobile that is not used in the trade of the debtor. 

Avoidable Non-Consensual Liens

Non-consensual liens are secured liens which the debtor did not agree to such as judicial liens arising from judgments against the debtor, tax liens and statutory liens.  A judicial lien can be avoided entirely on real estate and even an automobile if the debtor can prove that he is able to claim the property on which the lien has been placed as exempt from the bankruptcy estate.  Courts can grant a complete lien avoidance or a partial lien avoidance as appropriate in the debtor’s financial circumstances.

Motion to Avoid a Lien

A debtor must draft and file with bankruptcy court a motion to avoid a lien based on his Chapter seven bankruptcy.  There would then be a hearing on the request and the creditor would be heard in opposition to lien avoidance request to reduce or eliminate his lien on the debtor’s real or personal exempt property. 

Getting Legal Help

If you or a member of your family has been forced to file for Chapter seven bankruptcy protection and would like to file a motion for a creditor lien avoidance in connection with the Chapter seven bankruptcy action then it would be important to contact a bankruptcy lawyer as soon as possible to discuss the debtor’s financial circumstances and the proposed bankruptcy court lien avoidance motion.