In literature, the three musketeers answered to Athos, Porthos, and Aramis. In the world of bankruptcy, they live on yet with different names. That doesn’t make them any less effective or, in the wrong hands, less lethal.
The Code accords better treatment to creditors holding liens. Therefore, it is often our sworn duty as fighters for our clients to tackle those liens, whittle them down, or eliminate them all together.
Without knowing how to attain these goals, you’re not able to represent your client at full capacity.
Let’s look at our tools for cutting down the privileges of lien holders.
Musketeer #1 – Avoid
Debtors can avoid liens that impair an exemption. The statutory basis is found in §522(f).
the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section,
Since the statute is found in Chapter 5, we know that it applies in all chapters, but not to all liens. The statute limits avoidance to judicial liens and non possessory, non purchase money liens. Our moniker “avoid” is found in the statute.
Musketeer #2 – Strip
Lien stripping is the offspring of §506 and §1322. Section 506 describes an allowed secured claim as a lien that attaches to actual value in the collateral.
An allowed claim of a creditor secured by a lien on property in which the estate has an interest… is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property…
Section 1322 restricts what we can do about those who hold secured claims on the debtor’s home:
the plan may….modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence
You see the opening in the opponent’s defenses? If the claim isn’t the holder of a secured claim, then we can strip off the mortgage lien in a Chapter 13. (Can’t do it in Chapter 7 because of Dewsnup.)
Musketeer #3 – Cram Down
The third in our trio is cram down. Cram down describes the situation where we are able to bifurcate a lien, not protected by §1322, into a secured claim and an unsecured claim. This result, unpalatable to the lien holder, is crammed down his metaphorical throat.
We can cram down the mortgage on real estate that isn’t the debtor’s home; on a vehicle not protected by the hanging paragraph of §1325; or a judgment lien or tax lien that isn’t fully secured.
Can You Harness The Power Of The Three Musketeers Of Bankruptcy?
If not, you have a problem on your hands. Your client’s not adequately protected, and your effectiveness in the context of the bankruptcy case is severely hampered.
If you’re so inclined, pick up the downloadable sessions I’ve got available on each of these three musketeers ( Each session comes complete with an audio segment as well as forms you can start to use immediately.
Alternatively, you should grab some of the textbooks on the subjects and begin to work through the process of creating an at-the-ready set of forms and guidelines to help you get going.
Either way, don’t make the mistake of going into battle without the musketeers by your side.
Image courtesy of KenLudwig