Bankruptcy Can Remove Liens on Household Goods
If you took out a personal loan, did the lender ask you to write down a list of your personal belongings? If so, you may have given the lender a lien against your personal property, turning what would otherwise be an unsecured personal loan into a secured one. A lien is a claim against an asset that can be used to satisfy a debt. In other words, if you don’t pay the loan, the lender can take possession of the collateral you pledged to offset the debt. Typically, these types of loans are not made by banks, but instead by finance companies that specialize in small, high-interest rate loans.
The Finance Company Doesn't Want You To Know This...
But they don’t want your television. Used household goods are rarely worth enough to satisfy the loan. Instead, the lender knows that your belongings are worth more to you than to anyone else, and that if they tell you that they are going to take back your belongings, that you will do whatever it takes to pay the loan, often putting you further behind on your other bills or over-drafting your bank account. With the high interest rates charged on these loans, you will end up paying many times over what your property is actually worth. But, because of the high interest rates, it can take a long time to pay down the principal, keeping you trapped by the finance company for years.
Bankruptcy Can Help
Thankfully, filing Chapter 7 or Chapter 13 bankruptcy may help you remove the lien on your belongings. In order for this to occur and to ensure your creditors keep their hands off your belongings, you must make sure that these conditions are met:
- You must be able to claim an exemption in the collateral securing the loan.
- The collateral must be for household goods and furnishings, your work tools, or your prescribed health aids.
- The loan must have been a “nonpossessory, nonpurchase-money” loan. What this means is that the finance company can’t retain possession of your belongings, like pawn shops do. Also, the purpose of the loan can’t be for purchasing the property that is secured by the loan, like a house or auto loan.
You Must Ask The Court To Remove The Lien
Filing bankruptcy doesn’t automatically remove the lien. Instead, your bankruptcy attorney will file a motion with the court requesting that the lien be removed. While the finance company will have an opportunity to respond, they usually do not. If they don’t object, the court may not even hold a hearing and may rule in your favor by default. If the creditor does chose to respond, they would need to prove that your belongings are worth more than you can exempt. Luckily, under both the North Carolina and Federal exemptions, most filers can exempt all of their household belongings.