Defending Preference Actions: Statutory Liens

Robert S. Bernstein, Esquire
Bernstein-Burkley, P.C.
Creditworthy News

The Bankruptcy Code provides Creditors with a defense to a bankruptcy trustee’s preference action for transfers which constitute the fixing of a statutory lien. Specifically, Section 547(c)(6) states:

(c) the trustee may not avoid under this section a transfer —

(6) that is the fixing of a statutory lien that is not avoidable under Section 545 of this Title.

To understand this Section, one must first look at Section 101(53) of the Code, which defines a “statutory lien” as:

… a lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.

Accordingly, the Code’s definition of statutory lien excludes security interest and judicial liens. Examples of statutory liens are tax, mechanic’s, and materialmen liens because they are established by statute. Notably, a lien of distress for rent is also covered under the definition whether or not it is statutorily based. (See 11 U.S.C. Section 545).

A common example of when the Section 547(c)(6) defense applies occurs when a mechanic’s lien creditor perfects its lien within 90 days prior to the debtor filing bankruptcy. The perfection of the creditor’s lien during the 90-day period will not be deemed a preference because it is considered a statutory lien, which is not avoidable. Courts have even considered the filing of a Notice of a Mechanic’s Lien prior to bankruptcy as the fixing of a statutory lien and therefore not avoidable as a preference transfer.

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