People considering filing bankruptcy should understand the difference between a debt and a lien and how bankruptcy treats each of them.
Filing for bankruptcy can seem like an overwhelming task. There is a lot of paperwork to fill out, very specific procedures to follow and complicated financial concepts to grasp. One of the most important concepts that you should understand if you are thinking of filing bankruptcy is the difference between a debt and a lien because of how bankruptcy impacts each.
Debts vs. Liens
Both debts and liens relate to owing money. A debt is a legal obligation to pay money to someone or some entity. A lien gives the lender a security interest in a piece of property, meaning that the lender can repossess the property if the borrower fails to repay the debt. Debts that include liens are called secured debts. Some common examples of secured debts are mortgages, where borrowers give mortgage lenders security interests in their homes in exchange for the loan, and automobile loans, where the borrowers give lenders security interests in their vehicles.
Liens in New Jersey Bankruptcy
The reason that bankruptcy is such a powerful debt relief tool is the debt discharge that comes at the end of a successful bankruptcy case. If a debt is discharged in bankruptcy, it means that you no longer have a legal obligation to pay the creditor back. When a debt is secured by a lien, though, the bankruptcy discharge only erases your obligation to repay the money you borrowed - it does not eliminate your creditor's right to repossess the property that secured the loan. Your creditor may not, however, pursue you for the difference between the value of the property securing the debt and the amount of money you still owe.
If you are filing bankruptcy, you need to decide whether you want to keep your house, your car or any other property with a lien on it. If you do want to keep your property, you need to keep making payments on the debt.
Speak with an Attorney
Because of the complex and intricate nature of bankruptcy laws, it is wise to consult an attorney if you are thinking of filing bankruptcy. Having the assistance of an attorney will help ensure that you follow proper procedure, and a lawyer can help clarify things for you along the way. If you are struggling with your debts, speak with a seasoned New Jersey bankruptcy lawyer who can help you decide whether bankruptcy is the best option for your circumstances.