Readers familiar with the Mesa Bankruptcy Law Blog may be aware that foreclosure proceedings on a home are automatically stayed when they file for bankruptcy, but they may not be aware that a lien is a completely separate matter and is treated separately in a bankruptcy. A lien is a security interest against a property created by an agreement of parties. A mortgage would be an example. When an Arizona resident's debt is discharged through bankruptcy proceedings, they are generally discharged from paying most debts associated with the house, but not necessarily a lien, depending on what type it is.
A bankruptcy trustee generally sells a debtor's assets to repay creditors, but a home may be exempt from this sale if the home was purchased within 1,215 days of the bankruptcy filing and the equity of the house falls within the bankruptcy exemption limits of Arizona. If the home's equity does not fall within the exemption or was purchased earlier, the trustee may sell the home and use the amount to repay creditors and pay off liens and give the remaining amount to the debtor.
If a lien has not been perfected--recorded with the relevant offices--it is possible that the bankruptcy trustee would throw the lien out during the bankruptcy if there is not enough money left to pay it.
Deciding to discharge debts through Chapter 7 bankruptcy may not be an easy decision for most debtors to take, but once they decide to avail the federal protection granted to them, they may find that there is a light at the end of the tunnel. This light could be obscured by the complexities of differentiating between unsecured and secured debt and foreclosure and liens and an experienced bankruptcy attorney could guide residents through the process so they can get to the end of the tunnel.
Source: SF Gate, "Will bankruptcy eliminate a lien on a house?," M.C. Postins, Accessed on May 5, 2015
