Liens on Personal Property During Bankruptcy
One of the many drawbacks of ignoring unpaid debt is that creditors eventually file a lawsuit against the debtor and if these lawsuits are also ignored they can turn into judgments and then dreaded liens against personal property. It is when a debtor trying to sale their home is faced with a lien on their property that sends them running to a bankruptcy attorney for help. But while liens on personal property during bankruptcy can often complicate a bankruptcy case, they are not impossible to void.
Here's what you need to know:
- Once a creditor has won a lawsuit against you and has placed a lien on your property, their unsecured debt now becomes secured and will not be automatically treated like other unsecured debts in bankruptcy. While normally unsecured debts are discharged in bankruptcy, unsecured debts that have the power of a lien behind them are treated much like secured debts.
- While an unsecured debt with a lien transforms into a secured debt, it may be voided during bankruptcy if the lien interferes with the debtor's exemptions. For example, if the equity in a debtor's home is less than the homestead exemption then a lien against that home could be voided.
- If the lien was placed on the debtor's property less than 90 days before the debtor filed bankruptcy, then the lien might be voided due to it being preferential. Under the bankruptcy law, creditors of the same class must be treated equally, therefore allowing an unsecured creditor to become secured right before a bankruptcy filing via a lien would be unfair.
Have Any Questions About Liens and Bankruptcy?
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