30 May Power to Avoid Judgment Liens
The Bankruptcy Code gives individuals a powerful tool for a fresh start: the power to eliminate judgment liens on assets otherwise exempt. So, where in most cases bankruptcy deals with the assets and debts that the individual has on the date they file bankruptcy, the power to avoid liens allows the debtor to turn the clock back to a time before the lien attached.
These are the ground rules:
- The lien must be a judicial lien. The debtor can’t avoid a lien they granted voluntarily or a tax lien that arises by operation of law (a statutory lien).
- The lien must impair an exemption in the asset that the debtor would otherwise enjoy.
- The debtor must file a motion with the bankruptcy court asking that the lien be avoided.
There is more good news: if the debtor neglects to move to avoid an impairing lien during the case, the case can be reopened later on to avoid the lien. The analysis of whether the lien interferes with an exemption is made based on the value of the asset impressed with the lien at the time the case was filed. If the asset has increased in value, the lien creditor does not get the benefit of the appreciation.
Cathy Moran, Esq.
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