Not all liens are bad news -- for example, the mortgage is a lien you take on by choice -- but involuntary liens for unpaid debts make it hard to sell or refinance the property. To get rid of a lien, you must have it removed, and the way you have it removed depends on the lien itself and your goals. "Setting aside" a lien refers to a special type of lien removal, usually used in the context of a bankruptcy proceeding.
Paying a Lien
It's easy to remove a lien if you have the money. Just pay the lienholder in return for her sworn affidavit that the debt is settled. Present the affidavit to your county government to get the lien removed. This doesn't mean you have to pay the whole amount: if you can work out a deal, for example, to offer 75 or 50 percent of what you owe, the lienholder may agree. A creditor goes to court for a lien when she can't see any other way to get paid, so she may be happy to take whatever she can get.
Invalidating a Lien
Another way to remove a lien is to prove it shouldn't have been there in the first place. Applying a lien to your property is a legal procedure and your creditor has to follow state requirements. If your creditor screwed up and missed a legal step along the way, contact her about the error and ask her to remove the invalid lien. If she refuses, you can try suing to remove it, if you think your case is strong enough.
Setting Liens Aside
If a creditor puts a lien on your property, filing bankruptcy may not help. Filing Chapter 13 doesn't wipe out your debt to the lienholder; Chapter 7 wipes out debts, but can't remove liens. The trustee overseeing your bankruptcy case, however, has the power to set aside liens -- that is, the lien is removed, as if it never existed. If that happens, the creditor no longer has any claim on your property. The bankruptcy can then erase the debt or at least reduce how much you pay.
Reasons to Set Aside
A common reason for the trustee to set aside a lien is that your creditor hasn't perfected it. Perfecting a lien on real estate requires filing a record of the court judgment with the county registry of deeds. If you file bankruptcy first, the trustee will set aside the creditor's unperfected lien, so that she has no special claim on your property. In one bankruptcy case, the judge set aside a recent lien because in bankruptcy creditors divide up the debtor's assets equally. The judge ruled that the lien gave the lienholder an unfair share.
