Avoidance of Liens in Bankruptcy
By Nicholas Ortiz, Boston Bankruptcy Attorney on Apr 4, 2007 in Bankruptcy Practice and Procedure
Liens normally survive bankruptcy. Liens come in many different forms. Examples of liens include purchase money security interests, pledges, mortgages, deeds of trusts, and execution liens. The last example, an execution lien, is an example of a non-consensual, judicial lien. An execution lien normally arises when a creditor sues, gets a judgment and a writ of execution, and then records the execution in the registry of deeds where your deed is recorded. The way this happens varies from state to state, but this is the way it happens in Massachusetts. Most states have similar collection mechanisms. A execution lien prevents you from passing clean title on your house without satisfying the lien. It can also lead to a forced sheriff’s sale of your house in some circumstances. It is important to identify any such liens before filing a bankruptcy so that your lawyer can analyze whether the lien can be “avoided” in the bankruptcy. Section 522(f) of the Bankruptcy Code allows you to eliminate judicial liens if they impair a valid bankruptcy exemption. Although there is a formula in the Code to determine whether such an impairment exists, it will almost always exist when the existence of the lien means that you will have less exempt equity with the lien than without it. In these circumstances a judicial lien can be avoided during a bankruptcy case (usually via motion).
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