Battling Liens Against You

April 13, 2006

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When a creditor tries to get at your assets and attempts to enforce a lien against your protected property, in a state court or bankruptcy proceeding, that lien may be invalidated or eliminated if it is a judgment lien or a lien attributed to a court judgment, where the court judgment itself is the basis for the lien. Or you may be able to bifurcate the lien, stripping away some of its value, in bankruptcy court.

As a general rule, consensual liens and statutory liens cannot be eliminated, even when they are attached to protected assets. So, these types of liens can destroy an asset exemption status granted to you under the law. The result is really no different than if the asset were not classified as exempt. Clearly, this understanding is important, as an examination of the asset exemption tables alone can lead to a conclusion that an asset is exempt and thus protected, when, in fact, it is fully subject to the claims of creditors.

This general rule is subject to a few exceptions involving non-purchase-money, non-possessory liens, under the FTC Credit Practices Rule or in a bankruptcy proceeding. Further, the rules on lien elimination differ, to some degree, in state court proceedings and bankruptcy proceedings.

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