Lien Avoidance in Bankruptcy
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What is a judicial lien?
A judicial lien is a lien that gives a creditor an interest in real and personal property of a debtor based on an outstanding monetary judgment obtained by the creditor against the debtor. So, judicial liens are judgment liens because a judgment is required to create one.
A judgment lien is a collection tool for creditors because unlike a monetary judgment, it gives creditors a right to foreclose on the property subject to a lien. The lien gives creditors additional leverage against the debtor to collect on the judgment, although in practice, they rarely foreclose.
How long are judgment liens valid for?
In Florida, judgment liens are valid for 5 years from the original filing date and they can be renewed for another 5 years.
How can a creditor obtain a judgment lien?
In Florida, judgment liens on real estate are created by recording a certified copy of the final judgment with the clerk of court in the county where the debtor has real estate.
Judgment liens on personal property are filed with the Florida Department of State.
If you have an outstanding judgment against you, you can search either the clerk of court’s records or the Florida Department of State database to see if you also have a judgment lien against your property.
Can I discharge a judgment lien in bankruptcy?
In bankruptcy, debtors can discharge their personal liability on the debt but not the liens on the property, with some exceptions.
Liens are not generally discharged because they not collected from the debtor, rather they are collected from the property to which they attach. So, after bankruptcy, creditors whose debts have been discharged cannot attempt to collect on the debt directly from the debtor, i.e., they cannot sue the debtor or garnish the debtor’s wages or bank accounts or otherwise get paid from the personal assets of the debtor.
On the other hand, creditors who have a lien on a particular property can force sale of that property to get paid from the sale proceeds of that particular. By going after the property, they are not collecting from the debtor personally.
Although bankruptcy does not discharge liens, it provides a mechanism by which debtors can avoid certain liens through bankruptcy, in effect, discharging them. Debtors can avoid certain liens by filing a motion to avoid a lien with the bankruptcy court and get the court’s order avoiding the lien.
What liens are avoidable in bankruptcy?
Debtors can avoid judicial liens or non-possessory, non-purchase-money security interests in certain household goods to the extent the lien impairs an exemption. Liens created by statutes, i.e., such as tax liens, mechanics’ liens, HOA or COA liens are not judicial liens and cannot be avoided in bankruptcy, whether there is also a monetary judgment.
A non-purchase money security interest is an interest in property the debtor already owns at the time the security interest is created. For example, when a lender provides credit to the debtor to purchase certain property, it is called a purchase-money security interest. However, when a lender provides credit to the debtor against property the debtor already owns (e.g., second mortgage), it is a non-purchase-money security interest.
For the lien to be avoidable, the debtor must prove that (1) the debtor owned the property subject to the lien at the time the lien was attached and at the time of bankruptcy filing and (2) the debtor is entitled to an exemption in the property (i.e., the lien impairs the exemption.)
What household goods qualify for lien avoidance?
The household goods that are included in lien avoidance are clothing, furniture, appliances, 1 radio, 1 television, 1 VCR, linens, china, crockery, kitchenware, educational materials and equipment used by minor children, medical equipment and supplies, personal effects (toys, hobby equipment for minor children, wedding rings, 1 personal computer and related equipment.
What household goods are excluded from lien avoidance?
Certain household goods are excluded from lien avoidance, such as works of art, electronic entertainment equipment over $800, antiques over $800, jewelry over $800, computers, motor vehicles (including tractors or lawn tractors), boats or motorized recreational devices, conveyances, vehicles, watercraft, or aircraft.
Can you avoid a lien on a water softener?
If you finance the purchase of a water softener system, the lender will likely have a purchase-money security interest. Assuming there is a valid security interest in the water softener, the lien would not be avoidable in bankruptcy. Only non-purchase-money security interests can be avoided. So, bankruptcy would discharge the debtor’s personal obligation under the contract, but the lien would remain on the water softener.
Depending on how the system has been installed, it may be considered a fixture, which would prevent the creditor from repossessing it. Even if it is not a fixture, very often creditors do not repossess a used system because it costs more to repossess than the balance owed under the loan.
Although the creditor may not repossess, the lien will remain on the property and may affect the debtor’s ability to refinance the home.
How do you avoid a lien in bankruptcy?
Assuming a lien is avoidable (see discussion above), to avoid the lien in Chapter 7, the debtor would need to file a motion to avoid the lien while the bankruptcy case is open (or re-open a closed case) and serve it on the affected creditor. In Chapter 13, the lien avoidance would be provided for in the plan and the debtor needs to serve the proposed plan on the affected creditor. If the creditor objects, the court will schedule and hold a hearing to rule on the motion. If the creditor does not object, the court will issue an order avoiding the lien.
How can we help?
We can help you determine if lien avoidance is an option for your case and if the lien avoidance is worth it, which is a cost/benefit analysis because lien avoidance usually involves additional attorney fees and costs. For example, if the debtor does not own any property in the state and/or county whether the debtor resides or if the debtor does not own the property subject to the lien anymore, then it is a strong consideration against lien avoidance.
At Anna Handy Law Firm, P.A., we are acutely aware of the financial strain of our clients. We do not charge you for the initial phone consultation. We do not push you to file bankruptcy to get a retainer. We don’t push you to get unnecessary work done. We don’t judge – we find solutions. We give you honest advice about your options and rights, including the “doing nothing” approach. As such, we offer very affordable bankruptcy fees. We make our fees competitive and in certain cases, we offer payment plans to address each case individually as each case has a different set of circumstances.
If you are overburdened by your debts, being sued or harassed by creditors, or subject to wage garnishment, do not hesitate to call us now for a free initial phone consultation. The attorney’s direct business cell phone number is (386) 248-3000. You may also email us at [email protected].