Chapter 7 Effect on Liens


One of the most fundamental protections for creditors under Chapter 7 is the fact that liens normally pass through Chapter 7 unaffected by the debtor’s discharge. This means that if a creditor has a lien or a mortgage on your property, and if there is no way to “avoid” the lien (see below), then the creditor will be allowed to take back the collateral at some point after you file bankruptcy if you don’t make payments and honor the original contract terms.


A lien is a security interest affecting some type of property owned by the debtor. Most typically in a bankruptcy case it is going to be a lien or a mortgage secured by the debtor’s residence or other real property, or the title slip to a motor vehicle that has money owed on it.

Purchase money security interests in appliances and furniture are also common examples of assets that may be subject to a lien. Basically, a “lien” is usually found on something that the debtor purchased and for which the debtor has not finished paying. When the debtor files bankruptcy, the debtor can usually keep such an asset provided that the debtor continues to pay for the item and honor the original contract.

Other liens that do not come about when the debtor purchases an item are called “non-purchase money” liens. Recently short term loans on autos (so-called title loans) have grown in popularity and this would be a type of non-purchase money loan. Or if a creditor got a judgment against you before bankruptcy, they may have taken steps to lien your property with that judgment. This is also considered a non-purchase money lien.


Some liens are avoidable (removable) by the debtor. But when a lien is avoidable, a special action must be taken in the court. It does not happen automatically. And when the correct actions are filed in court, it is the debtor’s burden to prove with facts that each of the required circumstances exist that legally permit the court to order the avoidance of the lien (or at least part of the lien).

Generally, liens can be avoided against assets, but only up to the amount of any exemption that the debtor was entitled to claim on the affected asset; and provided that the lien arose as a judgment lien, or as a nonpossessory, nonpurchase money lien on certain kinds of household goods and personal effects belonging to the debtor. The terms “non-possessory, non-purchase money” means that the debtor already owned the asset before it was ever pledged as collateral for the debt, and the creditor did not keep possession of the asset as security for the debt.

Here are some examples of liens and what actually happens to humans and their property in Chapter 7:Examples:

  • Jewelry held in pawn. It is not subject to lien avoidance. You lose it because a pawnbroker keeps possession of the jewelry until the loan is paid in full. For this reason, the loan isn’t “non-possessory.” In case you are trying to follow this as a human, “possession” is the opposite of “non-possessory.”
  • You put up your home furnishings as collateral for a loan. A debtor who has borrowed money from a loan company by using home furniture and appliances as collateral for the loan can usually avoid the lien. You may win. This is because such furniture and appliances are usually EXEMPT, the debtor did not use the borrowed money to buy those assets, and the debtor did not have to surrender possession of the collateral until the loan was repaid. As you can see, in this case the necessary elements of a non-possessory, non-purchase money lien against EXEMPT property have been met.
  • A judgment lien was recorded against your house. These are usually avoidable IF the equity in your home that the lien took away would have been protected as EXEMPT (e.g., by the California homestead exemption). We look at your property as if the judgment lien wasn’t there. If there is equity over your valid mortgage(s), and if that equity would have been EXEMPT, you probably will get to erase the judgment lien if you take the proper steps in court and prove the necessary facts. Of course, you’ll still have to pay your mortgage(s) if you want to keep your house.


There are certain liens called statutory liens that the debtor cannot avoid. Examples are tax liens and mechanic’s liens.

LEON’S TIP: Remember, you have to take special actions in court to avoid (remove) a lien. Certain liens against exempt property are avoidable by the debtor, but the lien avoidance does not happen automatically. The debtor must take affirmative legal action in court to get a separate court order avoiding the lien. Unless the debtor takes these steps, the lien remains against the debtor’s property and can still be enforced by the creditor, after the case is closed. This is true even though that lien could have been avoided during the case.

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