Can Filing for Chapter 7 Bankruptcy in Atlanta, Georgia Remove a Lien on my Property?

 

 

One of the most common questions that my clients in Atlanta ask is whether or not filing for chapter 7 bankruptcy can remove a lien that’s been placed on their property. Bankruptcy typically does well at 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 the property.

 

Filing for Chapter 7 Bankruptcy

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 a lien against the 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 in Chapter 7 Bankruptcy?

Filing for 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. 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 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 can repossess the property and sell it if a debtor does not pay back their debt. If t   collateral is not available, a creditor may sue the debtor for the value of the collateral.

 

Can Filing for Chapter 7 Bankruptcy Remove a Lien in Georgia?

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 exemptions but can also choose to use federal exemptions. Georgia bankruptcy filers must use Georgia exemptions. A writ of Fi Fa (Fieri Facias) that is filed in Georgia attaches to all 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 Bankruptcy Lawyer Before Filing

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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