As discussed in our earlier blogs, Section 522 of the Bankruptcy Code provides many protections and powers in connection with debtors’ exemption rights. Section 522 gives the debtor an unqualified right to avoid any judicial lien that impairs an exemption, with an exception for domestic support obligation debts. The Bankruptcy Code defines “judicial lien” broadly to include levies, judgment liens, and liens obtained by any other legal proceeding, 11 U.S.C § 101(36). To the extent a creditor’s lien is avoided, the creditor becomes an unsecured creditor and the lien cannot attach to property that the debtor acquires after the petition is filed.
Property Subject to the Power to Avoid Judicial Liens
The power to avoid judicial liens extends to every type of exempt property, without limitation, including property exempted under a wild card exemption. The wild card exemption is an exemption that can be applied to any property of the debtor. Unlike some of the other avoiding powers, the lien need not have been obtained within a certain time period before the bankruptcy petition. The lien may also be avoided if it was obtained after the filing of the petition on a prepetition debt. Even if the lien has caused the property to be repossessed or removed from the debtor’s possession, it can be avoided, forcing the return of the property.
Limitations on the Power to Avoid Judicial Liens
If the lien only partially impairs the exemption, only that part may be avoided. Additionally, if an interest in joint property is subject to process and is thus nonexempt only because of a judicial lien, then that judicial lien should be avoidable to the extent the property could otherwise be exempted. In any case, there should be no doubt that, to the extent a creditor has a judicial lien on the interest of only one of two co-owners, and that interest may be claimed as exempt under Section 522, the creditor’s lien is avoidable. National Consumer Law Center, Consumer Bankruptcy Law and Practice (8th ed. 2006).
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