A LIEN is one of the more contentious and difficult concepts to understand in the world of Bankruptcy.
The legal term LIEN refers to a form of security interest granted over an item to ensure that the owner of that item pays their debt. The process of putting a lien on someone’s property (most often their house) can be done in several ways. The first way is where you take out a loan to purchase an item and you sign something saying that you agree that they have a security interest in the item. This is called a PURCHASE MONEY LIEN. A good example of this is a car title loan. The Bank lends you the money and in return, you agree to give them a lien on the title to the car. On the other hand, if you borrow money and give the lender the title to your car or pledge other assets of yours as collateral for the loan, you are giving them a NON-POSSESSORY NON-PURCHASE MONEY LIEN. This means, the lender has a lien in the property that you continue to possess, but the lender did not finance your purchase of this property.
Another way a creditor can get a lien on the property is by filing a lawsuit against you, obtaining a court order and recording it with the probate office of the county in which you reside. This is called a JUDGMENT LIEN. The fourth type of lien is called a STATUTORY LIEN. Some examples of a statutory lien are tax lien, mechanic’s or contractor’s lien, landlord’s lien or hospital lien. There are specific Federal or State statutes that govern how these liens are created and who can claim them to secure the payment of debt.
Bankruptcy law treats creditors who have liens differently than other creditors. Creditors who have a lien are “secured creditors”. In most cases, creditors’ liens are not affected by bankruptcy. In other words, the liens survive bankruptcy. So, if you have a home that is secured by a mortgage, you can bankrupt against the underlying promissory note and not pay anything else owed on the note. However, the mortgage still attaches to your house. So, if you don’t continue to make your mortgage payments, the mortgage lender can foreclose on the lien and take your property. The same thing goes for your car.
With most purchase money or consensual liens, you either want to keep the collateral or surrender it to the lender. If you surrender the property, then most likely, you will not owe anything else to the lender. If you want to keep the property, you will want to enter into a Reaffirmation Agreement with the lender saying that you will continue to make the contractual monthly payments and be responsible for the balance owed to them.
The contentious aspect of liens comes more into play with judgment liens. This is usually true because in most instances, you disputed the debt before it ultimately became a judgment. One of the most powerful tools of bankruptcy is that you have an opportunity to avoid judgment liens and keep them from attaching to your property.
HOW CAN I AVOID A JUDGMENT LIEN?
The keys to being able to avoid a judgment lien are knowing when the judgment lien was recorded and determining the value of the property to which the judgment lien would attach.
To be effective against someone who files for bankruptcy, a judgment lien must be filed more than 90 days before the bankruptcy case was filed. Judgment liens filed within 90 days before the bankruptcy is filed are subject to being avoided as to the full amount of the judgment regardless of the value of the property.
If the judgment is recorded more than 90 days before the bankruptcy was filed, you can file a Motion with the Bankruptcy Court asking the Court to avoid the judgment lien as to property that you own if the lien impairs your exemption in that property. For example, let’s say someone has a judgment against you for $100,000 and you own a house in Alabama that is valued at $50,000. If you can claim your homestead exemption of $15,500, this only leaves $34,500 of value in the property for the judgment lien to attach to. So, you can bankrupt on the underlying debt and eliminate $65,500 from the value of the judgment lien against your home. But, if you want to remove the judgment lien from your home, you will need to make arrangements to pay the creditor something to satisfy the balance of the judgment.
The lien concept is a very complicated one. It is important that you discuss these things with an experienced bankruptcy attorney who knows how to deal with liens in your bankruptcy case.
If you are struggling to pay your debts and concerned about the future welfare of you and your family, it is important that you seek the advice of a bankruptcy lawyer to ensure that your assets are protected and the debts you seek to eliminate are dischargeable. Our attorneys have been assisting consumers and business owners with bankruptcy matters for over 25 years. If you are considering filing for bankruptcy, please consider contacting the Nomberg Law Firm. Our office number is 205-395-0532.
Steven D. Altmann has been a lawyer for more than 25 years. Steve has earned an AV rating from Martindale-Hubbell’s peer-review rating and was recently named a Super Lawyer and Top Attorney by Birmingham Magazine in the area of Bankruptcy Law.
We are a Federal Debt Relief Agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.