Liens and Bankruptcy

16 Jul Liens and Bankruptcy

When I meet with a new client to go over their possible bankruptcy filing, I always ask about what they own–real estate, cars, etc.–and what claims are filed against it–mortgages, title loans, etc. Often, the client says that they don’t own any of these things. When I press a bit, I am told, “Well, the bank owns it; I just make the payments.”

It would be more accurate from a legal perspective to say, “I own it, but the bank has a lien on it.” What is a lien, and why does it matter?

Sometimes called “security interests,” a lien is a legal claim against something that you own. What you own is called the “collateral” for the loan. If you don’t make the loan payments, most liens let the lender sell the collateral, after following specific rules regarding documentation, timing and notice. Mortgages and car loans are the most common sort of liens that people agree to have placed against their property. There are also “involuntary liens,” such as court judgments, tax liens, mechanic’s liens, or homeowner’s association or condo liens, that are imposed even though you don’t want them.

All liens give the holder certain powers over the collateral. Apart from the ability to sell the collateral if there is a default, there are usually restrictions on sale or the transfer of title. For example, you can’t sell your car if there is a lien against it unless the lien is paid off, or give your house to your sister without the lien continuing to apply despite the change of ownership. Liens may show up on your credit report.

It is very important to let your bankruptcy attorney know about everything you own–even if there are liens on it–as well as any liens you are aware of. How your case is handled may depend on the type of lien that exists. Some liens may be able to be “avoided” or “stripped off” or “crammed down,” meaning that you might not have to pay them or may be able to pay less, in a bankruptcy case. It may also be possible that the lien wasn’t “perfected,” or recorded in the way or in the time your state’s laws require for it to be effective.

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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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