Whether a creditor can put a lien against your property under bankruptcy law depends on the timing and nature of the lien. If you are facing a lien as a debtor, bankruptcy may or may not protect you. While bankruptcy can be an effective tool in getting out from under debt, a lien can often stand independent of a debt and need to be satisfied even if you file bankruptcy.
Path to A Lien
Although a creditor may ultimately have the right to put a lien on your property, a series of legal events need to occur before such a lien is permissible. Typically, a creditor has to file a lawsuit against you and get a judgment from the court before a lien is allowed. However, if you have already filed bankruptcy, your creditor's right to put a lien on your property is postponed. Bankruptcy law affords debtors the right of the automatic stay, which prevents all collection activities. Since a lien is by definition a collection action, a creditor can neither pursue nor enforce a lien once you file bankruptcy.
Bankruptcy Discharge
If a lien is not yet in force at the time you receive a bankruptcy discharge, your creditor may be out of luck. Your bankruptcy discharge will wipe out your obligation to pay back your creditor, and it will also create a permanent injunction against your creditor from pursuing legal action against you. If you have a bankruptcy discharge, your creditor generally loses the right to file a lawsuit and get a lien against your property.
Eliminating A Lien
If your lien survives bankruptcy, you may still be able to void it if you can use your state's bankruptcy exemptions. A lien can only survive bankruptcy to the extent that it does not violate your bankruptcy exemptions. For example, if a creditor puts a $5,000 lien on your land, but your state exempts land or a homestead to $10,000 in bankruptcy, you can petition the court to remove the lien.
Tax Liens
Tax liens are among the most difficult to eliminate. If you don't pay your tax bill, the Internal Revenue Service (IRS) will generally allow you to pay your taxes in installments. If you refuse or are unable to pay, the IRS will usually file a lien against your property, without having to go to court. Although even a tax lien is subject to the automatic stay of bankruptcy, your tax lien will typically survive your bankruptcy discharge. Unless the IRS agrees to void your lien, or if the 10 years associated with a statute of limitations expire, the only way to get rid of your tax lien will be to pay the debt.
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