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Voided Liens Case – Brock v. Branch Bank & Trust Co.

Income Tax Bankruptcy6The Bankruptcy court and sometimes the Debtor has the ability to avoid liens that are not properly filed or that are poorly secured. In Brock v. Branch Bank & Trust Co. (6th Cir.) the Debtor purchased a vehicle with financing from a bank within 90 days of filing chapter 7 bankruptcy. Under Kentucky law, a lender must file it’s security interest in a vehicle by having its lien filed on the vehicle’s title within 20 days. The Bank filed the lien with the clerk but the clerk delayed almost 2 weeks between the date the Bank filed the lien with the clerk and the date the lien was recorded on the vehicle’s title.

The Bankruptcy Trustee avoided the Bank’s security interest as a preferential transfer under 11 USC 547. Since the Bank did not have its lien filed (placed) on the title within the 20 days the lien was voided.

In another case at a home loan closing someone forged the signature of a notary on the mortgage causing the mortgage to be invalid. Often the bankruptcy attorney cannot detect errors like this on the mortgage or title and property can be lost to the Bankruptcy trustee or other creditors. But the Debtor also can have the power to avoid the liens or mortgages of banks when the bank has no equity in the property. Often creditors that have sued and attached real estate, wages or bank accounts can be forced to release these liens or mortgages. The bankruptcy code allows the court to “value” a lien or claim and to force some mortgages or liens that were filed just prior to filing bankruptcy to be released. Some liens or second mortgages are worthless, others are filed without the creditor giving anything of value to file them and still others simply were filed improperly.