Below are some examples of when the bankruptcy court and sometimes the debtor has the ability to void liens. We invite you to continue reading to learn a few of the ways bankruptcy, in some instances, actually voids liens and mortgages.
How Bankruptcy Voids Liens and Mortgages • Case Examples
⎆ Brock v. Branch Bank & Trust Co.
In Brock v. Branch Bank & Trust Co. (6th Cir.) first, the debtor purchases a vehicle with financing from a bank within 90 days of filing Chapter 7 bankruptcy.
Next, under Kentucky law, a lender must file its security interest in a vehicle by filing its lien on the vehicle’s title within 20 days. However, in this case, the bank files the lien with the clerk. Then, the clerk delays almost two weeks between the date the bank files the lien and the date the lien records on the vehicle’s title.
Consequently, the bankruptcy trustee avoids the bank’s security interest as a preferential transfer under 11 USC 547. Then, since the Bank did not have its lien filing on the title in place within the 20 days—the court voids the lean. If the bank did do a proper filing of mortgage the trustee would have something like a 2nd mortgage or judgment lien. But the bank did not file the first lien.
⎆ Another Case Example
In another case, at a home loan closing, someone forges the signature of a notary on the mortgage causing the mortgage to be invalid. Often the bankruptcy attorney cannot detect errors like this on the mortgage or title.
In those cases, the bankruptcy trustee or other creditors get the property. Additionally, the debtor also gets by the liens or mortgages when the bank has no equity in the property.
Creditors that attach real estate, wages, or bank accounts are often forced to release them. For instance, the bankruptcy code allows the court to “value” a lien or claim. Some liens or second mortgages are worthless.
Moreover, others file without the creditor giving anything of value while others simply file improperly. This sometimes allows them to force mortgages or liens to be released if they file just prior to the bankruptcy filing.
Resources for Bankruptcy
Louisville Kentucky Bankruptcy Forms
Other Related Information
How to Avoid Mortgages and Strip Liens
Rescue and Predatory Home Mortgage Fraud
How to Manage Your Car Loans in Bankruptcy
Property Tax Foreclosure Bankruptcy
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
