Lien Avoidance: How To Maximize Exemptions When Filing Chapter 7 Bankruptcy

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Lien Avoidance: How To Maximize Exemptions When Filing Chapter 7 Bankruptcy

tags: arizona bankruptcy attorney, bankruptcy exemptions, Casa Grande bankruptcy lawyer, cram down liens, fees phoenix bankruptcy lawyer, lien avoidance, lien stripping, Tucson bankruptcy lawyer, what debts are discharged in chapter 7 bankruptcy

I was recently asked to explain the difference between a lien avoidance and lien stripping, and I am happy to oblige. Here is part 1.

A lien can be thought of as a right to retain the lawful possession of the property of another until the owner fulfills a legal duty to the person holding the property. In common terms, you can think of a lien as a debt for which your property is collateral – for example your mortgage is a common lien. In bankruptcy, lien holders are generally considered secured creditors, which changes the way they are compensated in bankruptcy proceedings. At the risk of oversimplifying the scenario, secured creditors are generally guaranteed the value of the debt or the value of the collateral, whichever is less.

There are ways in bankruptcy to avoid or eliminate liens against your property by removing the secured status and thus reassigning the debt as unsecured. Both lien stripping and lien avoidance are directly supported by the bankruptcy code. Today I will talk a little about lien avoidance, and leave the stripping for another day.

The bankruptcy code calls for discharge of ‘in personam’ liability (personal liability); however, ‘in rem’ liability (property liability) remains. What this means is that, in cases of secured debt, your personal liability to the debtor is discharged but your property as collateral is not. That is, secured debts such as unavoided liens can pass through a bankruptcy discharge. Thus even after discharge, your creditor may still foreclose or repossess the property.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Christopher Ariano, Ariano and Reppucci PLLC | Attorney Advertising

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