It is possible to file for Chapter 7 bankruptcy after receiving a lien because of an unpaid debt. However, certain guidelines are in place for filing for Chapter 7 and not everyone qualifies. Chapter 13 is another form of bankruptcy and is available to people who do not qualify for Chapter 7. FindLaw describes a lien as a claim to property for satisfying a debt. With a lien in place, the debtor cannot sell or transfer the property until settling the debt.
Challenges
Filing for Chapter 7 after receiving a lien is possible, but doing so will not automatically remove the liens. Bankrate.com reports that assistance from an attorney is often necessary for removing liens following the completion of Chapter 7 bankruptcy. Otherwise the liens will remain in place.
Function
Chapter 7 is a simple form of bankruptcy and is desirable by many because of its speed. Chapter 7 completely eliminates qualifying unsecured debt such as credit cards, in as little as four months, according to MSN Money. Liens are possible after creditors win monetary judgments in court. Judgments require the debtor to pay a specific amount of money before discharging debts that exceed the means of the debtor. Creditors typically seek liens to force the debtor to pay. Income limits for Chapter 7 vary by the state and usually only people with low incomes that cannot afford their mounting debt will qualify.
Considerations
Filing for Chapter 7 is not difficult, and is possible without the help of an attorney, although the bankruptcy courts advise against this. A debtor can file an emergency Chapter 7 bankruptcy petition in as little as one business day. Bankruptcy courts offer a simple application form for people who must file immediately because of liens and garnishment. The initial application is temporary, and the debtor must complete more extensive paperwork for the bankruptcy filing to continue. In the meantime, the emergency filing offers complete protection from creditors.
The Automatic Stay
Chapter 7 and all other forms of bankruptcy include a legal injunction known as "the automatic stay." The stay is a primary reason many people file for bankruptcy. It forces all debt collection activity to end immediately. The automatic stay also ends all debt lawsuits in progress and prevents new lawsuits from starting. People filing emergency petitions for bankruptcy must complete the formal application for the automatic stay to remain. Failing to do so causes dismissal of the stay.
Advice
People facing liens should consult with a nonprofit credit counselor before considering bankruptcy. Other options are often possible for liens, including direct negotiations with the creditor. The Federal Trade Commission recommends bankruptcy as a debtor's last choice for handling debt. Creditors holding liens are often willing to settle the judgment. Debt settlement allows a person to pay off a debt for less than the full balance, and is preferable to filing for Chapter 7 bankruptcy, according to the commission.
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