Lien

A lien is the right to take and hold or sell the property of a debtor as security or payment for a debt or duty. A lien acts as collateral when a debtor must borrow money from a lending institution to pay for the property. A lending contract is made between the creditor and debtor, and payments are made over time, which can include interest, penalties, and fees in addition to the principal. The legal rights of liens are governed primarily by state laws.

A lien in bankruptcy comes into play during the process when a secured creditor asks relief from the automatic stay or petitions the court because of an alleged abuse by the debtor concerning the lien.

A lien in bankruptcy is normally not discharged, but some bankruptcy courts will allow the stripping of certain liens during the bankruptcy process. Stripping of the lien reduces the debt from secured to unsecured status. Any non-exempt, unsecured debt can be discharged in bankruptcy, so the effect of stripping a lien and changing its status has the same effect as discharging a lien.

Normally an owner of property with a secured lien cannot transfer title of ownership without satisfying the debt contract that holds the lien. This can be important to people who file for bankruptcy protection because although a secured debt may be discharged in bankruptcy, the lien generally will not. That means you may own a house and you may not be responsible for making payments, but the lien holder ultimately can control what happens to the house.