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Liens Survive, Like Cockroaches. A Discharge Doesn't Scrape Off a Properly Perfected Lien.

By Joseph McDaniel, Esq.

When I was a kid, we heard in school that after a nuclear war, we could be sure of one thing: the cockroaches would survive. And that's because no matter whether the weather is very hot, or full of sulfur, or full of germs, or full of kryptonite, cockroaches can take a beating and keep on eating.

Now, a properly perfected lien is about as persistent as a cockroach, except in the incorporeal sphere of bankruptcy law in Arizona.

So what is a lien? Well, it's simply a constitutionally-protected property right owned by a creditor in a specific piece of collateral. For instance, if it's not paid in full on the date of filing, the bank will have a lien on your car.

And there are other liens; a mortgage on your house, for instance, survives the bankruptcy discharge.

So what good is a bankruptcy discharge if it doesn't get rid of liens?

Plenty good!

A bankruptcy discharge scrapes off your personal liability for debts, so that after the discharge the creditor can't sue you, or garnish you, in connection with a dischargeable debt.

On the other hand, after the bankruptcy discharge order has been entered, part of the automatic stay vanishes like the morning dew.

And at that point, if you haven't made peace with a secured creditor, the secured creditor can repo your car, or grab back the furniture that you bought on time, or maybe the jewelry that you purchased but didn't finish paying for at the time of the discharge.

In addition, a judgment against a debtor which was properly recorded pre-petition will survive the bankruptcy process as a judgment lien on real property; that requires special treatment if you want to sell your house without having to pay it in full after your bankruptcy.

Full post as published by Arizona Bankruptcy Attorney Blog on March 07, 2011 (boomark / email).