Legal Definitions - lien avoidance

Definition: Lien avoidance is a legal process in bankruptcy where a debtor can remove a creditor's security interest in an asset of the bankruptcy estate. This means that the creditor's claim to the asset is no longer valid, and the debtor can keep the asset without having to pay the creditor.

Example: Let's say that John files for bankruptcy and has a car worth $10,000. He owes $8,000 on the car loan, and the lender has a security interest in the car. If John uses lien avoidance, he can remove the lender's security interest in the car and keep it without having to pay the remaining $2,000 on the loan.

Explanation: In this example, John is able to use lien avoidance to keep his car without having to pay the remaining balance on the loan. This is because the lender's security interest in the car is no longer valid, and John can keep the car as part of his bankruptcy estate.