{"id":3334,"date":"2016-10-24T07:00:47","date_gmt":"2016-10-24T12:00:47","guid":{"rendered":"https:\/\/nybankruptcy.net\/main\/?p=3334"},"modified":"2018-10-04T09:21:30","modified_gmt":"2018-10-04T09:21:30","slug":"unperfected-liens-clear-advantage-chapter-11-tougher-chapter-13","status":"publish","type":"post","link":"https:\/\/nybankruptcy.net\/main\/unperfected-liens-clear-advantage-chapter-11-tougher-chapter-13\/","title":{"rendered":"Unperfected Liens: Clear Advantage in Chapter 11, Tougher in Chapter 13"},"content":{"rendered":"

I’ve written about how debtors can avoid liens<\/a> in New York bankruptcy when they impair their exemptions, but trustees can avoid liens against debtors’ assets too, thanks to section 544 of the Bankruptcy Code. Of particular value to some debtors is the trustee’s power to avoid liens that creditors improperly recorded\u2014also described as “unperfected.” It doesn’t happen often, but debtors who pay attention to their lien documents and find errors can benefit significantly in a chapter 11 bankruptcy and possibly in chapter 13 as well. Here’s how.<\/p>\n

Whenever a debtor secures a debt with property, usually real estate or vehicles, the creditor records the lien according to state law. In almost all circumstances, this goes off without a hitch. Clearly and carefully recording liens is a natural part of lenders’ businesses. However, on rare occasion there’s a mistake\u2014and not just a typo that courts will look past. If the lot number or description is wrong, for example, then the lien is no good.<\/p>\n

If the debtor files in chapter 11 or chapter 13, then usually the creditors will file proofs of claim. It’s here that a debtor’s diligence reaps a reward. If the creditor claims its debt is secured by an unperfected lien, then the debtor can avoid it in chapter 11 (because the debtor gains a trustee\u2019s power) and the trustee can in chapter 13, typically after the debtor files an objection to the proof of claim and convinces the trustee to do so. It’s in the debtor’s, trustee’s, and other creditors’ interest because the debt then becomes an unsecured claim, meaning more of the plan payments go to the other creditors, and the debt is discharged at the end of the bankruptcy. If the debtor is lucky enough to still own the property after the bankruptcy, then it’s free and clear of any lien.<\/p>\n

This is exactly what happened in a Wisconsin bankruptcy case in 2012 (pdf). The creditor incorrectly recorded the lien on the debtors’ property by citing the wrong lot number. The bankruptcy court found that the lien was invalid and the mortgagee’s debt was really unsecured. Importantly, the debtors worked with the trustee because chapter 13 did not give them the power to do so on their own. In fact, the federal circuits are split on whether debtors can avoid liens. The ninth and sixth allow it, but the third and fifth don\u2019t. New York\u2019s second circuit has not ruled on it, but a New York bankruptcy court has, holding against the debtor. (The case is, In re Binghi<\/i>, 299 B.R. 300 (Bankr. S.D.N.Y. 2003))<\/p>\n

An example of a debtor avoiding an unperfected lien occurred in a chapter 11 New York bankruptcy in early 2015 (pdf<\/a>). The creditor treated a personal interest in the debtor’s condos as a real estate interest, and incorrectly described the property the debtor’s pledges secured. The Southern District of New York bankruptcy court sustained the debtor’s objections to the liens.<\/p>\n

Most of the time creditors properly perfect their liens, but every now and then they make mistakes. If you suspect there’s something wrong with a lien on your property, especially a mortgage, or you’re a creditor who’s facing a debtor’s objection to your proof of claim over an unperfected lien, then you want an experienced New York bankruptcy lawyer to handle the case.<\/p>\n

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY<\/a> Bruce Weiner for a free initial consultation.<\/p>\n","protected":false},"excerpt":{"rendered":"

I’ve written about how debtors can avoid liens in New York bankruptcy when they impair their exemptions, but trustees can avoid liens against debtors’ assets too, thanks to section 544 of the Bankruptcy Code. Of particular value to some debtors is the trustee’s power to avoid liens that creditors improperly recorded\u2014also described as “unperfected.” It …<\/p>\n

Unperfected Liens: Clear Advantage in Chapter 11, Tougher in Chapter 13<\/span> Read More \u00bb<\/a><\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-global-header-display":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"default","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":""},"categories":[16,116,26,7,36],"tags":[2,71,29,51,52,37],"acf":[],"yoast_head":"\nUnperfected Liens: Clear Advantage in Chapter 11, Tougher in Chapter 13<\/title>\n<meta name=\"description\" content=\"I've written about how debtors 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