Bankruptcy Alphabet: A is for “Avoidance”
Avoidance can be one of the many useful things in the bankruptcy alphabet. Many people know avoidance as a lien strip. Section 522(f)(1) of the U.S. Bankruptcy Code permits a debtor to avoid judicial liens on any property claimed as exempt, and nonpossessory, nonpurchase-money security interests in household goods and certain other property claimed as exempt.
Section 522(f)(1)(A) gives the debtor the right to avoid any judicial lien that impairs an exemption, except a lien securing a domestic support obligation. The term “judicial lien” is broadly defined under the bankruptcy code, but it generally includes levies, judgement liens, and liens obtained in judicial proceedings. A debtor may avoid judicial liens attached to any type of property: homes, vehicles, household goods, and any other property that may be claimed as exempt.
Section 522(f)(1)(B) allows a debtor to avoid nonpossessory, nonpurchase-money security interests (financed appliances, jewelry, etc.) in household furnishings, household goods, wearing apparel, appliances, animals, crops, or musical instruments that are used primarily by the debtor or their dependents.
A debtor may “strip off” or remove a lien on their property if the lien interferes or “impairs” an exemption by filing a motion explaining how the lien impairs (or reduces) the equity in your property.
For example, let’s say that Visa was awarded a judgment against you in the amount of $30,000 and the value of your interest in your property without liens is $20,000. The lien exceeds your interest by $10,000. Therefore, the lien impairs your exemption and is void.
Motions to avoid liens may be filed in both chapter 7 and chapter 13 cases. If a lien is avoided in a chapter 13 case, the claim can be treated as an unsecured claim under the debtor’s plan. If you do not have equity in your property, your attorney should still file a motion to avoid lien because if none is filed, your liens will survive your bankruptcy