The next concept in the Bankruptcy Alphabet is Lien. What is a lien? Is it like “lean on me”? or a lean cut of beef? No, the legal term lien refers to a process that a debt collector can go through to be sure someone pays their debt. The process of putting a lien on someone’s property (most often their house) can be done in two ways inIllinois. The first way is if, when you take out the loan, you sign something saying that you agree that they have a security interest in the item. This is called a consensual lien. A good example of this is is a car title loan. The Bank lends you the money; in return, you agree to give them a lien on the title to the car. Another way a creditor can get a lien on property is by using a court order and recording it with the county recorder.
Bankruptcy law treats creditors who have liens differently than other creditors.
Creditors who have a lien are “secured creditors”. In most cases, creditors’ liens are not affected by the bankruptcy. So, if you have a home mortgage, it will survive the bankruptcy. So you cannot file bankruptcy, keep your house, and not pay the mortgage. Same thing goes for cars. The key factor is when the lien is filed with the county recorder’s office. To be effective, it must be filed before the bankruptcy case.
There are some limited situations where a lien can be treated differently in a bankruptcy. For example, in a Chapter 13 (payment plan type of bankruptcy), your attorney can try to “strip down” a second mortgage if the home value is less than the balance owed on a first mortgage. If successful, the plan would pay the second mortgage holder whatever percentage the other unsecured creditors are getting paid.
The lien concept is a very complicated one. It is important that you discuss these things with an experienced bankruptcy attorney who knows how to deal with liens in your bankruptcy case. If you live inWisconsin or Illinois and have questions about your situation, call us.
Daniel J. Winter
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