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.

Judicial Liens

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.

Household Goods

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.

Avoidance Procedure

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

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