Information about Liens and Bankruptcy

Chapter 7 and Chapter 13 are the two most common types of bankruptcy filings used by consumers. It is vitally important to have a bankruptcy attorney – one that will fight to protect your rights and property. The right attorney will help you keep your home, vehicles or other property.

A common concern for people who are considering bankruptcy is what happens to their liens during a bankruptcy. It is important to know that bankruptcy discharges only the personal liability of the debtor, not the liability of property that has a lien on it prior to a bankruptcy petition. Do not despair, though. Some liens can be voided, all or in part, during bankruptcy proceedings.

For instance, tax liens are not voidable in Chapter 7 bankruptcy, even if they impair exemptions. However, tax liens can be voided in Chapter 13 bankruptcy, to the extent that the lien is greater than the asset’s value. The type of filing helps determine which liens can be voided and which cannot.

In a Chapter 7 filing, also known as a straight bankruptcy or liquidation, most liens cannot be avoided and survive the filing. This is especially true of secured liens. However, many types of unsecured liens are voided during the proceedings.

Debts such as: child support, spousal support, income taxes less than 3 years old, property taxes, student loans (unless you win an adversary proceeding), and fines and restitution imposed by a court are exempt from discharge. All debts, regardless of their potential discheargability, must be listed on bankruptcy forms.

Chapter 13, also known as reorganization, is another type of bankruptcy filing. One of the main differences between Chapters 7 and 13 is that under Chapter 13, a plan to repay creditors over a 3 to 5 year period is proposed. Generally speaking, the person filing gets to keep their property and the creditors end up with less than they are owed.

In Chapter 13, liens can be stripped down to the value of the collateral of the loan. This includes voluntary liens such as mortgages and home equity line of credit loans. Basically, this is a realistic payment plan supervised by the courts. The payments you will be required to make are based on what is left in your budget after living expenses are deducted. It also provides for creditors that are not part of your repayment plan.
For instance, if a creditor places a lien against you for a debt that was incurred prior to bankruptcy proceedings, they cannot collect on that debt. This means your cash flow is protected and your budget remains steady. There are debt limits for filing a Chapter 13 plan. These amounts are adjusted periodically in accordance with the consumer price index.

All liens you have will need to be dealt with. Some liens will need to be paid in full, some you may be able to negotiate a payback amount. A good bankruptcy attorney can answer all of your questions about what happens to your liens in bankruptcy.

The best way to determine which plan suits your needs best is to consult a bankruptcy attorney. Let Legal Helpers, http://www.legalhelpers.com, connect you with the right lawyer for you.