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What Is a ‘Statutory Lien’ in New York Bankruptcy?

A lien is a legal claim by one person over the property of another. “Statutory liens” are a specific subset of liens; they arise by force of (you guessed it) statute when certain circumstances or conditions are met. One of the most common examples is a tax lien. Whenever people don’t pay their taxes, the IRS or other tax authority can affix liens on the taxpayers’ assets. Other examples include mechanic’s liens (for builders on real estate, not auto mechanics) or artisan’s liens (for workers on personal property; these are the auto mechanics). If someone doesn’t pay a lien, the lien-holder can legally hold the property until payment occurs, or it can use the judicial system to collect on the lien. The Bankruptcy Code defines statutory liens to include liens for rent, even if those don’t arise by state law.

The most important thing to know about statutory liens in New York bankruptcy is that they are typically nondischargeable. The important exception is tax liens, but there are special rules that apply to those that are discussed here. In chapter 13, the holder of a statutory lien is considered a secured creditor who will likely be paid out of the repayment plan.

Another issue that pops up in bankruptcy is whether a statutory lien is a preference to the lien-holder that can be avoided by the trustee. Obviously, if the debtor’s property is encumbered by a lien, the trustee can’t place it into the bankruptcy estate and liquidate it. Section 547(c)(6) gives lien-holding creditors a defense against a preference action. However, the Bankruptcy Code creates some exceptions, such as if the statutory lien is for rent or distress of rent (contrary to the Code’s definition above), or if the lien doesn’t become effective against the debtor before a certain time period. For instance, if the lien is “perfected” after the debtor filed bankruptcy or became insolvent, the trustee can avoid it.

If you’re having financial problems and one of them includes a statutory lien on your property, it is crucial to hire an experienced New York bankruptcy lawyer to help you sort things out. Resolving the matter might require filing bankruptcy in a different chapter than you might have expected. Likewise, if you are a creditor with a lien on a bankruptcy debtor’s property, you will want to hire a lawyer if the trustee tries to avoid your lien.

For answers to more questions about statutory liens in 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 Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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