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What does it mean to avoid a lien?
When you “avoid” a lien, you obtain a judicial determination that the lien no longer encumbers a piece of property.
For
example, suppose that you own Blackacre, your ancestral estate. It is
presently worth $300,000, subject to a first mortgage of $180,000.
Suppose that someone obtains a judgment against you for $30,000 and
then obtains a lien against Blackacre. They are planning to force a
sale of Blackacre in order to recover their $30,000, or else they’re
planning on camping out at your next refinancing or sale in order to
skim $30,000 off the top of whatever money you receive after the
mortgage is discharged. Now you file bankruptcy, and let’s suppose that
your state law provides a $200,000 homestead exemption. The judgment
lien impairs that exemption (makes it less worthwhile). Therefore, the
Bankruptcy code allows you to avoid the lien, which means you will
emerge from bankruptcy with Blackacre free and clear of that lien.
However, the mortgage lien still exists because the Bankruptcy Code
does not let you avoid voluntary or nonjudicial liens.
(Reviewed 11.14.08)
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