Free Consultation
The office is open as per the NYS Covid-19 guidelines. We are now doing both in-person and telephone consultations. Please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys.

‘Avoiding’ Liens in New York Bankruptcy

Most of the time when the term “avoid” comes up in New York bankruptcy it’s used in the context of preferential transfers to creditors. That is, the debtor transfers money to a creditor he or she likes more than the others, such as a relative, and the trustee chooses to nullify (“avoid”) the transfer. The other time avoidance comes up is with liens. In this situation, though, the debtor is the one trying to nullify something—the lien—to his or her benefit and not the bankruptcy estate’s. Note that avoiding a lien is not the same thing as “stripping” a lien as debtors sometimes try to do in chapter 13 or chapter 11.

So when is lien avoidance possible? When the lien “impairs” an exemption. The relevant statute is Section 522(f) of the Bankruptcy Code.

A lien impairs an exemption when it denies the debtor the benefit of that exemption. For example, let’s say a debtor owns a home somewhere in New York City worth $600,000 with a mortgage worth $450,000 and a $30,000 lien affixed to it. Subtracting the mortgage from the property’s value gives us $150,000 that would normally be exempt. However, because of the lien, the debtor can’t fully use the exemption. The law, then, avoids the lien, releasing the debtor from having to pay it once the bankruptcy is concluded, so the debtor can keep the exempt equity.

A lien can also be avoided partially. For instance, if the mortgage was worth only $440,000, then the debtor’s equity would be $260,000. However the exemption plus the lien is still a greater amount, $270,000. In this situation, the lien is avoided to the extent that the debtor can claim the full value of the exemption, so it would be reduced to $10,000.

It’s very important to point out that not all liens can be avoided. The statute only protects debtors from two types of liens: judicial liens (except those for domestic support obligations), certain “nonpossessory, nonpurchase-money security interests,” and, in chapter 13 only, tax liens when they’re greater than the secured asset’s value. Liens on “nonpossessory, nonpurchase-money security interests” attach to pieces of the debtor’s personal property not because they have significant market value but because they’re valuable to the debtor. Examples include appliances, books, animals, musical instruments, jewelry, tools of trade, and health aids that are pledged in exchange for a loan.

If a creditor recovers an item protected by a lien, debtors can take advantage of Section 522(h) and avoid the transfer to the creditor under the same principles that the trustee can if the trustee does not do so. This way, the debtor can benefit from an exemption even if he or she no longer holds the property.

Due to its high homestead exemption, debtors in New York have an easier time avoiding liens than debtors in other states. It’s a significant advantage the Bankruptcy Code gives them, and an experienced New York bankruptcy lawyer can help a debtor move the bankruptcy court to avoid a lien.

For answers to more questions about liens, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced New York bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

Recent Posts

Seven Tips for Paying Down Credit Card Debt and Raising Credit Scores

File under non-bankruptcy options: What are some ways to pay down those credit card debts, stay out of New York bankruptcy, and possibly raise your credit score? Here are some answers: (1)  Obtain your credit report. By federal law, you’re entitled to up to three free credit reports from the three credit reporting bureaus for

Read More »

What Are the Benefits of a 100 Percent Chapter 13 Repayment Plan?

One might think that the answer to that question is “nothing,” but that’s not true. It is sometimes worthwhile for debtors to file chapter 13 New York bankruptcy intending to pay their creditors in full even if the discharge isn’t really necessary—a filing referred to as a 100 percent repayment plan. Obviously it doesn’t happen

Read More »

Chapter 13 ‘Step Plans’ Can Help Debtors Accommodate Life Events

Debtors considering chapter 13 New York bankruptcy sometimes wonder how to craft their repayment plans when they anticipate significant events that are nearly certain to reduce or increase their incomes. For example, sometimes debtors know that a pregnant spouse will not be working for the beginning portion of the repayment plan but will be able

Read More »

Chapter 13 ‘Step Plans’ Can Help Debtors Accommodate Life Events

Debtors considering chapter 13 New York bankruptcy sometimes wonder how to craft their repayment plans when they anticipate significant events that are nearly certain to reduce or increase their incomes. For example, sometimes debtors know that a pregnant spouse will not be working for the beginning portion of the repayment plan but will be able

Read More »

Chapter 13 ‘Step Plans’ Can Help Debtors Accommodate Life Events

Debtors considering chapter 13 New York bankruptcy sometimes wonder how to craft their repayment plans when they anticipate significant events that are nearly certain to reduce or increase their incomes. For example, sometimes debtors know that a pregnant spouse will not be working for the beginning portion of the repayment plan but will be able

Read More »

Chapter 13 ‘Step Plans’ Can Help Debtors Accommodate Life Events

Debtors considering chapter 13 New York bankruptcy sometimes wonder how to craft their repayment plans when they anticipate significant events that are nearly certain to reduce or increase their incomes. For example, sometimes debtors know that a pregnant spouse will not be working for the beginning portion of the repayment plan but will be able

Read More »
Scroll to Top