In general, real estate liens have various effects on a debtor. Liens are defined as an interest in a certain property to secure payment of a debt. A lien is typically said to “run with the land”. As such, a lien can be transferred with the sale of land from the debtor to anther party.Certain real estate liens take priority over others. This becomes an issue when determining whether a bankruptcy exemption might apply and a lien can be stripped. For example, a tax lien continues for a minimum of 3 years and six months on property is superior to any mortgage and can be enforced by the a foreclosure conducted by the government.
A lien on real estate can occur either by a recorded instrument or by operation of law. The majority of liens, which are not by operation of law, require some type of recording at your local registry of deeds.
Tax liens and their effect on personal property
The Federal Government holds a general lien on all property of a taxpayer for non-payment of any tax due the United States. 26 USC 6321. A tax commences at the date of the tax is assessed. It applies also to after acquired property and lasts for 10 years.
As is stated in Internal Revenue Code a tax lien is not valid against a purchaser or lien holder unless there is notice by recording in the registry of deeds. 26 USC 6323(a).
The State of Massachusetts may also hold a lien on all property of any person who does not pay their taxes after the Department of Revenue makes demand. A state tax lien may remain in affect for up to six (6) years.
Mechanic’s liens and their effect on personal property
“A person to whom a debt is due for a personal labor performed in the erection, alteration, repair or removal of a building or structure upon land or improvement or alteration to real property, by virtue of an agreement with, or by consent of the owner…”Massachusetts General Laws c. 254 § 1.
There are basically two types of Mechanics Liens. The first is a lien for a contractor who has done work on real property with pursuant to a contract with the property owner. The second type of Mechanics Lien is for the materials and labor used under the contract. There must be a notice contract filed with the registry of deeds prior to completion. These liens must be filed within ninety (90) days of the completion of work, if no payment is received. These types of liens are often easier to strip away as part of a bankruptcy by way of demonstrating an interference with the homestead exemption.
Section 727 (12e) of the Bankruptcy Code states that there are three ways in which a bankruptcy discharge can be revoked.First, a discharge can be revoked if it can be shown that the debtor obtained the discharge by fraud, and that the fraud was not known to the requesting party until after the discharge was granted. Second, a discharge can be revoked if the debtor acquires property that is property of the estate, and knowingly and fraudulently fails to either report the acquisition or deliver and surrender the property to the trustee. Third, is when the debtor refused to obey an order of the court other than an order to respond to a material question.
According to Section 727(e), A creditor or trustee can bring an action to revoke a discharge under Rule 7001 FRBP. The plaintiff would need to show that the discharge would not have been granted, but for the fraud. The plaintiff must also allege fraud with particularity, and must file the complaint for a revocation within one year after the discharge was granted. In re Kasden, 209 BR 239, Bankr. L. Rep. P 77,419 (1997). In this case, a creditor filed an action to have a debtor’s discharge revoked because the debtor acquired property, and did not disclose that it was estate property. The court upheld the revocation because that the debtor knowingly and fraudulently failed to disclose this information.
The creditor may also assert that there was fraudulent intent, which can be established by showing that the debtor acted so recklessly that fraud can be implied.
