The bankruptcy case terminates your legal liability on the secured debt as in a car loan or house loan but it does not remove the lien that was posted against the property when the loan was given. This is a difficult legal concept for many people to understand. A bankruptcy wipes out unsecured debt, any debt that is not a loan against a tangible asset, as in a car or house.
A bankruptcy discharge bars future enforcement of the debtor’s pre-petition, personal obligations on the debtor’s property; liens however generally survive bankruptcy and can be enforced after the bankruptcy ends. A secured debt that is attached to a car or house will survive the bankruptcy because the secured debt has a lien against the car or house.
A lien is a form of security interest granted over an item of property to secure payment of a debt. For instance, a mortgage is a consensual lien imposed by a contract between the bank (creditor) and the homeowner (debtor). The lien is recorded at the county recorder’s office in the town or region where the property is located.
You cannot clean of a lien in a bankruptcy case. However, a bankruptcy prevents the lender from pursuing you personally to pay the mortgage loan or car loan, which has a lien on your house or car.
In legalize, the bankruptcy removes your In personam (personal) legal liability for the debt but the lien holder is permitted to pursue a foreclosure In rem (against the property).
Pennsylvania law requires lenders to go through the court system to take back ownership of the property. It is very important for a homeowner to realize that they are the legal owner of the property until the property is back in the possession of the bank.