A bankruptcy discharge wipes out your personal liability for discharged debts. But it doesn’t automatically remove liens from your property. While Chapter 7 bankruptcy allows you to avoid certain judicial liens, you can’t use it to remove statutory liens from your property. Read on to learn more about what a statutory lien is and why it can’t be removed through Chapter 7 bankruptcy.
In general, only judicial liens (liens arising out of a court judgment) can be avoided in Chapter 7 bankruptcy. Section 522(f) of the Bankruptcy Code allows you to avoid judicial liens to the extent they impair your bankruptcy exemptions. However, this section doesn’t apply to statutory liens.
The Bankruptcy Code defines a statutory lien as a lien arising solely because of a statute. It is essentially a lien that is created automatically by operation of a statute or law (meaning it doesn’t require any subsequent judicial action such as a lawsuit or court judgment).
There are many types of statutory liens. However, most statutory liens are created by state law and can vary from state to state. The following are examples of common statutory liens:
Tax lien. These are liens afforded to the IRS (by federal law) or state and local taxing authorities (by state law) for unpaid tax obligations.
Landlord’s lien. Your landlord may have a statutory lien on your personal property located in the house or apartment if you don’t pay your rent.
Artisan’s lien. Persons performing maintenance or repair on automobiles or other personal property may have a lien on that property if you fail to pay for their services.
Mechanic’s lien. These liens are afforded to laborers, contractors, or suppliers on your real property if you don’t pay for the construction or materials used to improve the property.
Vendor’s lien. If you are buying real property but fail to pay the full purchase price, the seller is afforded a lien on the property.
Warehouseman’s lien. These are liens given to warehouses and other storage facilities on property stored at the premises to secure unpaid storage fees.
You typically can’t remove statutory liens in Chapter 7 bankruptcy. Only the bankruptcy trustee has the power to avoid them if certain conditions are met.
However, you may be able to avoid or reduce certain statutory liens in Chapter 13 bankruptcy through a cramdown or lien strip. But keep in mind that modifying or avoiding statutory liens in Chapter 13 bankruptcy can be very complex and depends on numerous factors. Talk to a knowledgeable bankruptcy attorney in your area to discuss your options prior to filing your case.