What is a Lien?

A lien is a legal claim tied to a borrower’s asset. It serves the purpose of securing a debt with collateral property, thus reducing risk for the creditor. If the borrower defaults on a loan, a lien gives the creditor the right to seize the property and sell it to pay off the borrower’s debt.

Types of Liens

There are several types of liens. Many are consensual and go into effect when you take out a loan. In this case, the property is usually directly related to the purpose of the loan. For instance, a bank may repossess a car if the borrower stops making payments on an auto loan. Or a creditor may foreclose on a house if the borrower defaults on their mortgage.

However, other liens take effect without the borrower’s consent, including judgment liens. If a creditor sues you and gets a judgment against you, a lien attaches to your most valuable asset—in most cases, your home. This means a judgment lien could make you lose your house unless you come up with a quick way to pay off your debt.

Lien Avoidance in Bankruptcy

That’s where the option of filing for bankruptcy comes in. Depending on the type of lien you have and the underlying debt it’s tied to, you may be eligible for lien avoidance. This is when the lien is permanently removed from your property.

Examples of liens that can be avoided in bankruptcy include:

• Judgment liens: A judgment lien gives a creditor tremendous leverage to make you pay your debt. If you attempt to sell or refinance your home with a lien attached, you will be forced to pay the judgment. The lien can sometimes prevent you from completing the sale or refinance altogether. And in some circumstances, a creditor can foreclose on the judgment lien, even if you don’t attempt to sell or refinance the home.
• Nonpossessory, non-purpose-money liens: These 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.
• Nonconsensual liens: When a creditor records a lien against your property without your agreement, it’s known as nonconsensual. Examples include judgment liens, tax liens, and other less common liens.

The only time the liens listed above may not be avoided is if they are tied to debts that can’t be discharged in bankruptcy, including:

• Most student loans
• Child or spousal support
• Divorce property settlements (except under Chapter 13)
• Criminal fines and restitution
• Most income taxes and other debts to the government
• Most HOA fees and assessments
• DUI fees

Whether or not you can successfully avoid your lien in bankruptcy depends on the specifics of your situation. The bankruptcy lawyers of Cutler & Associates can carefully review your financial situation and recommend the best course of action. To learn more, please schedule a free consultation at one of our Chicagoland offices by calling (773) 360-5802 today.