Mechanic's Lien and Bankruptcy: What You Need to Know

When a vehicle owner doesn’t pay for auto repair services, a mechanic’s lien may be placed on the vehicle, giving the mechanic the right to hold onto the car until the outstanding debt is paid. However, when the vehicle owner files for bankruptcy, the impact on the mechanic’s lien can vary depending on the type of bankruptcy filing. This blog post will explore how bankruptcy affects a mechanic’s lien.

Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, the debtor’s non-exempt assets are sold off to pay creditors. If the mechanic’s lien is valid and the debtor’s vehicle is sold, the proceeds from the sale will be used to pay off the lien before any other creditors. However, the mechanic may only receive the total amount owed if the vehicle’s value is sufficient to pay off the lien.

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, the debtor works out a repayment plan with the court. The mechanic’s lien may be included in the repayment plan, and the debtor will be required to pay off the lien throughout the plan. If the vehicle is essential to the debtor’s ability to earn a living, the court may allow the debtor to keep the car while they make payments on the lien.

Foreclosure of the Mechanic’s Lien

It’s important to note that the mechanic’s lien holder has a legal right to the vehicle and can foreclose on it if necessary. However, if the car is essential to the debtor’s ability to earn a living, the bankruptcy court may allow the debtor to keep the vehicle while they make payments on the lien. Similarly, the ability to foreclose on the lien will be at the bankruptcy court’s discretion and may not be the same in all cases.

Conclusion

If you are a mechanic or auto repair shop, it’s essential to be aware of how bankruptcy can impact a mechanic’s lien. While a valid lien gives you legal rights to the vehicle, you may not receive the total amount owed if the car is sold in Chapter 7. In Chapter 13, the lien may be included in a repayment plan, but you may have to wait longer to receive payment. Regardless of the type of bankruptcy filing, working with a bankruptcy attorney is essential to protect your rights.