What is Lien Avoidance in Bankruptcy? What does it mean?

You mean you don't know what Lien Avoidance is? Just kidding. Don't be frightened by legal jargon- bankruptcy law is full of it and hopefully your lawyer is explaining this stuff to you. Lien avoidance is a method sometimes used during the course of bankrupty. It "avoids" (wipes out, erases) a lien on a secured debt. This means that the creditor's legal intersest in the collateral goes away. It comes in to play when the item securing the loan is something you already owned before you used it to back up a loan. For instance, if you owned a piece of machinery and then went out and used it as collateral on the loan, a lien avoidance might come into play. Lien avoidance is not applicable when your collateral is the item you are buying. 

Lien avoidance is also very important in situations when a lien was put on as the result of a judment after a lawsuit. Personal liability for a judment may be discharged in bankrtupcy, but if there was a lien put onto a house or other property as the result of a judgment, that needs to be dealt with in bankruptcy court.  If this is your situation, you'll want to also read my article about lien avoidance in judgment situations.

Bankruptcy is nothing to be scared of, but lien avoidance and other things that come up can be tricky. A good bankruptcy lawyer can be worth their weight in gold, don't go it alone.



Carol O'Connor Cadiz
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Attorney & Owner at O'Connor Cadiz Law: Injury & Accidents, Disability Insurance.