Chapter 7 Bankruptcy and Liens

  • Chapter Seven Bankruptcy

Chapter 7 Bankruptcy and Liens

Lien can make bankruptcy and its procedures complicated. Lien could be defined as a right to the lender to take over the specified asset in case the debtor fails to repay his/her debt. The right of lien for the lender or a creditor is valid even for Chapter 7 bankruptcy. Hence, it cannot be released or skipped even if you file bankruptcy under Chapter 7. No lender gives money with a motive to fight out battles in court or to seek different modes for extracting his due. Every lender is an investor and he/she looks for security. The best way to secure the investment is by attaching an asset of the debtor in case he/she defaults or is unable to pay his debts. This is even more important when the loan is bigger and is offered at a relatively lower interest. To know in depth about bankruptcy and its repercussions, log on to Recovery Law Group right now.

Understanding lien and other financial terms associated with it

The lien when exercised leaves the lender with an option to use, auction, or sell the asset in order to recover his loan. There is usually an agreement that is cited between the lender and the debtor which gives an exercisable right or ownership to the lender if the debtor fails to repay. Depending on the terms of the agreement, it is likely that the creditor is responsible for the amount not recovered by selling or disposing of the asset. A deficiency balance is the financial term used for the amount lender fails to recover even after disposing of the lien asset. Under Chapter 7 code, most states release deficiency balance and in very rare circumstances, will the debtor be liable for the deficiency balance.

Secured debt, collateral and credit card

A debt which has a lien is regarded as secured debt. The asset which is kept as a security to cover the debt is referred to as collateral. The collateral does not usually exist in an unsecured loan. Credit card or pay day loans can be categorized under unsecured loans. Usually, the lien is known by the debtor but there can be some instances of enforced liens. These are usually enforced by some government agencies due to non-compliance or similar acts.

For instance, if the IRS attaches a particular asset of yours for non—payment of dues, it is a lien. Another example of such liens could be a lawsuit liability. If a creditor sues a debtor in the court before filing bankruptcy, and the court asks the debtor to clear the dues by backing a specific asset of the debtor, it could be a lien. Unsecured debt has been converted into a secured one. It is quite rare but can happen in some circumstances. This is known as a judicial lien or a judgement lien. The unsecured creditor usually evaluated the cost of litigation and debt and might sue the debtor to convert an unsecured debt to a secured lien if he/she wins the court case.

What can be exercised during judicial liens?

A judicial lien can give access to the creditor with most assets. Real estate is excluded from this lien. Using exemptions and various other strategic planning, most debtors can save automobile, household stuff, home, etc. However, the lender usually goes after the most liquid and easy viable assets like money from the bank account or from future wages. Money cut from wages and granted to the lender or any other lien exercised is referred to as wage garnishment. Under Chapter 7 bankruptcy Dallas, all your loans are wiped out, but you have to sacrifice your assets too. There is no liability for released debt or deficiency balance once the bankruptcy is done and dusted.

In case you had like to keep a specific asset, you might want to use the exemption or pay the dues in full to retain the asset. You can also consider an out of court settlement with the lender who has a lien on that particular asset. With forgiven debts, there is a rise in hefty tax liabilities. You might get away with the liability of debts but there is tax liability hanging behind if the debts released or settled are of high worth. To seek best advice and professional assistance on all your bankruptcy questions contact 888-297-6203 now.