When you work with a lender to enter into a property loan agreement, you will most likely have a voluntary lien built into that contract. Property liens are effective methods for lenders to secure the loan value they give you in case of bankruptcy or other inability to repay. All liens act to protect the lender, but they can take many different forms in addition to the common car lien or mortgage lien. If you are struggling to meet debt payments on a lien regarding secured debt and you choose to file for bankruptcy in Mankato, MN, Behm Law Group, Ltd. offers the legal advice and professional counsel to help you build a strong case and understand how your lien-secured property and debts will be handled.
While the common types of liens often deal with homes, cars, and other properties most individuals and businesses own, there are specialty liens that come into play for specific situations. One the more unusual liens you may encounter is a Mechanic’s Lien.
How it Works
Like other liens, a Mechanic’s Lien protects the lender if a borrower can’t repay the loan. These liens are sometimes called construction liens because they come into play for contractors and construction crews as well as mechanics, suppliers, designers, and professional builders. A Mechanic’s Lien is a legal document that gives a mechanic or other specified professional who signs and files the lien the right to collect payment. If you hire a contractor to remodel your kitchen, for example, that contractor is allowed to do several things if you refuse payment for services. First, they are allowed to file a lawsuit against you for the amount owed, and second, they can contribute to forcing you into bankruptcy if you have other creditors you’ve also refused or been unable to pay. Whatever action they take, they will have to file a Mechanic’s Lien to be guaranteed repayment. They are secured as to the asset that they perform services on. For instance, if a roofer installs a new roof on your house, the roofer could obtain a mechanic’s lien against your house as security for repayment.
How it Works in Bankruptcy
If you file for bankruptcy, voluntarily or otherwise, the creditors involved in your case that hold a lien over your property—a Mechanic’s Lien, or any other type of lien—are considered secured creditors. This means they will come first in line (along with priority creditors, such as tax debts and child support or alimony debts) for repayment in the event your assets are liquidated, or you propose a repayment plan. In a Chapter 7 case, secured creditors receive the value gained from liquidating your assets that serve as their collateral before any other creditors, and in a Chapter 13 case, secured creditors are either repaid the value of their collateral securing the amount you owe or you must surrender that collateral.
Whether you file for Chapter 7 liquidation or Chapter 13 reorganization, your secured creditors will receive the highest payment priority in your case, including those who file for a Mechanic’s Lien. To learn more about liens and the role they play when you file for bankruptcy in Mankato, MN, contact Behm Law Group, Ltd. today.