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Liens Remain With Bankruptcy

Liens usually pass through Chapter 7 without being affected by the debtor’s discharge, meaning that if a creditor has a lien or a mortgage on your property (and if there is no way to “avoid” the lien), then the creditor is allowed to take back the collateral at some point after you file bankruptcy if you fail to make your payments and are not able to honor the original contract terms.

How to Avoid Liens

Some liens are avoidable and removable and require special action by a court. It falls to the debtor to prove to the court that each of the required circumstances legally permitting the court to order the avoidance of the lien (or at least a portion of the lien), exist.

Certain liens against exempt property are avoidable by the debtor. Lien avoidance does not happen automatically and a debtor must take action to get a separate court order avoiding the lien. Unless this is done the lien remains against the debtor’s property and can still be enforced by the creditor even after the case is closed and even though that lien could have been avoided during the case.

Liens against assets can be avoided. Here are some requirements:  the lien is only up to the amount of any exemption that the debtor is entitled to claim on the asset; the lien arose as a judgment lien, or as a non-possessory, non-purchase money lien on certain kinds of household goods or personal effects belonging to the debtor. “Non-possessory,” and “non-purchase money” mean the debtor fully owned an asset before it was pledged as collateral for the debt, and that the creditor did not seize the asset as security for the debt.

Statutory Liens – Not Avoidable

Statutory liens cannot be avoided by a debtor. Examples include tax liens and mechanic’s liens.

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