Bankruptcy is a method to discharge or clear debts. But when a creditor has a lien on your property, the discharge does not apply to their right to the asset. A valid lien provides the creditor a legal interest in the asset. In other words, liens give creditors property rights. Lien avoidance occurs when a debtor is able to avoid a judgment lien in bankruptcy. Our DuPage county bankruptcy lawyers strive to help you protect your property. While not all liens can be avoided, we remain knowledgeable and successful in helping clients secure relief from debt and remain in possession of their assets.
Lien avoidance is the process by which a person protects their property from a creditor or another in the course of bankruptcy. This may occur in Chapter 7 or Chapter 13 bankruptcy. A judgment lien can be avoided if it applies to property claimed as exempt. For example, if you have filed for bankruptcy and have a bankruptcy exemption that applies to some of the equity in your motor vehicle, you may be able to avoid the lien for that vehicle. The rationale is that triggering the lien prevents you from receiving the benefit of the exemption. An advantage of lien avoidance is that even if there is no intention of holding onto the asset, it can be sold and the funds received may be applied to something else.
There are two types of lien avoidance: total and partial. Total lien avoidance wipes out a lien and the debtor owns the asset, free and clear. Partial lien avoidance allows the amount of the lien to match the extent of the exemption. To avoid repossession or foreclosure, the debtor will usually be required to pay off the remaining lien. In most cases, it is required that you pay off the lien in one lump sum. Certain creditors may be open to accepting installments for repayment.
Assets that do not have equity are usually not eligible for lien avoidance. This is because the lien does not affect whether you can apply an exemption. A skilled bankruptcy attorney can help you assess whether there is an argument that the lien should be avoided.
Certain types of liens, such as statutory liens, cannot be removed or avoided. The bankruptcy trustee remains capable of avoiding a statutory lien, such as a tax lien The trustee is required to meet certain conditions in order to do so.
Additionally, a debtor cannot usually apply an exemption to property that does not hold equity. As a result, a debtor cannot avoid a judgment lien on that asset. The lien would not be preventing them from applying an exemption. A lien can be avoided in certain circumstances, for example if your house is worth less than the amount owed.
There are certain procedures to follow for lien avoidance in a bankruptcy proceeding. In a Chapter 7 bankruptcy, you will complete a Statement of Intention. It is important to inform your creditors regarding plans with property secured by a lien. Filing a motion to avoid the lien is necessary either when you initially file for bankruptcy or when you become eligible for it during the proceeding. Again, liens must impair or get in the way of a bankruptcy exemption that applies to the property.
The lawyers at the Bankruptcy Center of Illinois represent people through the bankruptcy process and help them remain in possession of their vehicle, their home, and other property. As DuPage County attorneys, we provide a free consultation regarding your bankruptcy case. We proudly help clients throughout Illinois, including Lake County, DuPage County, Chicago, Des Plaines, and Hoffman Estates. To better understand your rights, call our office at (773) 993-0024 or reach us online.