Skip to content

Statutory lien – for S

by Dorota Trzeciecka on November 14th, 2011

In the bankruptcy alphabet challenge, most participants must have thought of liens for letter L.  But, alas, Jay Fleischman has already done an excellent overview of liens in bankruptcy in his blog L is for Lien.  So, I want to expand on a less common category of liens in consumer bankruptcy cases, ones that arise by operation of the law.   They are sometimes referred to as statutory liens.

One notable example of  the statuary lien is a mechanic’s lien.  In many states, including Florida, if you hire a contractor to work on your home and you do not pay them, the contractor and the supplier of materials automatically gets a mechanic’s lien on your home.  So does a homeowner’s association in some states, including Florida, if you do not pay your associations dues and special assessments.

Statutory liens have their own definition under the Bankruptcy Code, Section 101(53), and receive a special treatment  in bankruptcy. For example, a mechanic’s lien, when properly perfected  (within 90 days of the filing of the petition) and enforceable,  cannot be avoided by a bankruptcy trustee under Section 547(c)(6) , or by the debtor in a lien avoidance action as an encumbrance on real property that a debtor claims as exempt, like a homestead.

So, unlike a judicial lien that may be avoided in Chapter 7, if it encumbers debtor’s exempt property, or becomes an unsecured debt in Chapter 13 that is discharged upon completion of the plan, a statutory lien that is properly perfected and enforceable at the time of filing of the petition, survives Chapter 7.  In Chapter 13, a statutory lien is treated as a secured debt that has to be paid in full over the term of the Chapter 13 plan.