Can Filing for Bankruptcy in Georgia Extinguish a Lien?

One of the most common questions regarding filing for bankruptcy in Georgia that my Atlanta clients ask is whether or not filing for chapter 7 can remove a lien that’s been placed on their property. While bankruptcy typically does well wiping out most kinds of debt, however if a lien is attached to an obligation a debtor is required to pay, things can be a bit more complicated; for the most part chapter 7 bankruptcy does not remove liens against property.


Filing for Bankruptcy in Georgia

What is a Lien?

A lien is a legal claim against property acquired on a debt (typically a loan provided to allow the debtor to purchase the property). This legal claim gives the creditor the right to take the debtor’s property (known as collateral) and sell it to repay the debt, in the event the debtor is unable to pay off the loan. A common example of lien against property is a mortgage company taking an interest in a debtor’s house with a security deed.

There are many other types of liens, including judgment liens, mechanic’s liens, and tax liens. Bankruptcy can only extinguish certain types of liens, specifically judgment liens and liens against household items.

Secured Debt vs. Unsecured Debt

Liens guaranteeing payment of a loan are known as “secured” debts, while “unsecured” debts are debts that don’t require a borrower to put up property to guarantee payment.

What Happens to Liens When Filing for Chapter 7 Bankruptcy?

Chapter 7 bankruptcy typically allows a debtor to wipe out any responsibility to pay a secured debt, however a debtor is not able to keep the collateral property unless they pay what they owe their creditors.

This area can be tough to grasp. So here’s a quick way to sum this up: Chapter 7 bankruptcy will likely wipe out your responsibility to pay a secured debt (such as a mortgage or car payment), including any deficiency balance; however, you won’t get to keep the collateral (the house, car, or other property) unless you pay what you owe.

Responsibility and Right

Secured transactions have two parts, responsibility and right. Bankruptcy, by itself, does not eliminate a lien.

Responsibility — the debtor’s obligation to pay back their creditors in entirety. Bankruptcy removes a debtor’s personal liability for a debt, if the debt qualifies for discharge. This keeps the creditor from suing a debtor and using a judicial lien to garnish a debtor’s wages or take funds from their bank accounts.

Right — the creditor’s right to use the lien to recover the collateral. Creditors have the right to offset any balances you owe by selling the collateral and securing the debt. A creditor is able to repossess the property and sell it if a debtor does not pay back their debt. If collateral is not available, a creditor may sue the debtor personally for the value of the collateral.

Can Filing for Bankruptcy in Georgia Remove a Lien?

In both Chapter 7 and Chapter 13 bankruptcy, debtors are allowed to protect a portion of their assets by using “exemptions.” Each state, including Georgia, has its own exemptions but can also choose to use federal exemptions. Georgia bankruptcy filers must use Georgia exemptions. A Fi.Fa that is filed in Georgia attaches to all personal and real property that the debtor owns in Georgia. Thus, the judgment lien can be used to levy property, such as a car, or foreclose on a piece of real property. Under the bankruptcy code, a debtor may avoid that lien to the extent that his or her property is exempt.

Talk to a Chapter 7 Lawyer Before Filing for Bankruptcy in Georgia

Are you considering filing for chapter 7 bankruptcy due to a lien on your property? Before you make a decision, you need to be as informed as possible. For assistance, contact the expert chapter 7 bankruptcy lawyers of CMC Law by calling 404.585.0040


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