By Adam Mack
One of the primary reasons people file bankruptcy is to protect their assets from seizure, whether that asset is a paycheck that’s being garnished or a house that is in foreclosure. The mechanism by which a creditor can lay legal claim to a piece of property and take possession of or sell it is called a lien. Mortgages are a type of lien, as are car loans, so having a lien against your property isn’t necessarily a bad thing – unless you can’t meet your financial obligations.
A common misconception is that bankruptcy “wipes out” your debts, but if your property has a lien against it, bankruptcy will not in and of itself alter or eliminate that lien. This is true for both chapter 7 and chapter 13 bankruptcy. However, with a little extra effort, it is possible for a trustee or debtor in possession to avoid, modify, or strip a lien if it encumbers property that is otherwise exempt. (A debtor who isn’t a debtor in possession generally can’t change or remove a lien.)
There are two types of liens that generally may be avoided through bankruptcy: general judicial liens and nonpossessory, nonpurchase money security interests if the liens are against exempt property such as household goods (including appliances and furniture), jewelry, tools of the trade, some animals, and even professionally-prescribed health aids. The legal authority for removing these liens comes from 11 U.S.C. 522(f) and the court will order the removal of the lien only if asked to do so by motion within 44 days of the petition being filed (see Rule 4003 and Rule 1007). However, it is important to note that a judicial lien that secures a domestic support obligation is iron-clad and cannot be changed or removed.
No law would be complete without its exceptions, though. With the two types of liens that can be changed or removed, there are limits that get rather complicated depending on the exemptions you can claim and any other liens against it. Even for bankruptcy, this is potentially confusing area of law. If you are overwhelmed by debt and have a lien against your property, I encourage you to contact a qualified Kansas bankruptcy attorney for more information.
Please note, for a similar topic related to lien avoidance, see our lien stripping article.