Lien attachment to Wisconsin Bankruptcy Exempt Property
One of the most perplexing aspects of lien practice concerns the attachment of statutory liens. Wisconsin bankruptcy exemptions are vulnerable to lien attachment at all times before filing. In general, in a liquidation case, unsecured debts are discharged routinely. Secured creditors remain protected to the extent of their lien as covered by collateral value. Yet a third class of creditor, the protected class that enjoys statutory lien status, may intercede and claim priority status. For example, consider medical expenses accumulated during a workers compensation case. If the injury was caused by the negligence of a third party, the hospital who provided initial emergency care, and the insurance carrier who paid weekly benefits, are both covered by statutory liens against all third party causes of action. Because personal injury causes of action are exempt up to the extent required for support, the Wisconsin bankruptcy exemption may nevertheless be defeated, and proceeds denied to the injured party until the insurance company and hospital are repaid in full.
Avoiding Wisconsin statutory lien attachments
The attachment of a statutory lien is prohibited by the terms of Title 11, Section 545, at all times after a case is filed under any chapter of the Code. To avoid the lien however, the trustee must file a motion to avoid liens and receive court approval. Also, and perhaps more importantly, the affixing of a statutory while a debtor is insolvent may also be avoided, which extends the prohibition to a point in time before a case is filed. The resulting opportunity, as applied to the example above, may allow the debtor to withhold payment upon statutory liens and retain the Wisconsin bankruptcy exemption intact.
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