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Lien Avoidance - Bankruptcy

This topic discusses lien avoidance in bankruptcy.

Table of contents for this topic:

Introduction

Ordinarily, liens pass through bankruptcy unaffected.(1)

Avoidable liens

By trustee or debtor-in-possession

A trustee or debtor-in-possession may avoid:

  • the unsecured portion of an undersecured or unsecured claim - 11 USC 506(d) (not available in Chapter 11 or Chapter 13 vis--vis loans secured only by debtor homestead(2))
  • liens relating to subordinated claim - 11 USC 510(c)
  • liens avoidable by hypothetical creditor or bona fide purchaser - 11 USC 544
  • certain statutory liens - 11 USC 545
  • preferential liens - 11 USC 547
  • liens arising from fraudulent transfers - 11 USC 548
  • liens arising from post-petition transfers - 11 USC 549
  • liens securing certain non-pecuniary loss fines, penalties, forfeitures, or exemplary damages - 11 USC 724(a)

By debtor

A debtor may avoid:
  • the unsecured portion of an undersecured or unsecured claim - 11 USC 506(d) (not available in Chapter 7(3); not available in Chapter 11 or Chapter 13 vis--vis loans secured only by debtor homestead(4))
  • certain (A) judicial liens and (B) non-possessory, nonpurchase-money liens - 11 USC 522(f)
  • certain involuntary liens on exempt property (using trustee's powers, above) - 11 USC 522(h)

Limitations on avoiding powers

  • 11 USC 546 - Limitations on avoiding powers
  • Farrey v. Sanderfoot, 500 U.S. 291, 111 S. Ct. 1825, 114 L. Ed. 2d 337 (1991) - debtor cannot use 522(f) to avoid lien created by divorce decree

Effect of avoidance

Effect of later conversion or dismissal

Conversion. 11 USC 348

Dismissal. Under 11 USC 349, unless the court orders otherwise, a dismissal

(1) reinstates

(2) vacates any order, judgment, or transfer ordered, under section 11 USC 522(i)(1), 11 USC 542, 11 USC 550, or 11 USC 553 of this title; and

(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.

Procedure

Under Bankruptcy Rule 7001(2) an action "to determine the validity, priority, or extent of a lien or other interest in property, other than a proceeding under Rule 4003(d)" is prosecuted by adversary proceeding. Rule 4003(d) deals with lien avoidance under 11 USC 522(f) and allows the debtor to seek relief by motion.

Practice pointers

See also

External links

Footnotes

Notes

1 : Farrey v. Sanderfoot, 500 U. S. 291, 297, 111 S. Ct. 1825, 114 L. Ed. 2d 337 (1991)

2 , 4 : See Bankruptcy Anti Modification

3 : 11 USC 506(d) does not allow a Chapter 7 debtor to "strip down" an undersecured lien to a judicially determined value of the collateral. Dewsnup v. Timm,502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). "Most courts, including the Fourth and Sixth Circuits and the Bankruptcy Appellate Panel for the Ninth Circuit, have extended the Supreme Court's reasoning in Dewsnup to deny a Chapter 7 debtor's motion to "strip off" a wholly-unsecured junior lien." In re Hoffman, 433 B.R. 437, 440 (Bankr. M.D. Fla. 2010).


Topic revision: r21 - 29 May 2012 - 13:51:09 - Wikild BStaff 5
 
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