Statutory Liens Vs. Consensual Liens: Why It Matters And When It May Not

While secured creditors are entitled to special rights in bankruptcy, those rights may differ depending on whether creditors have a statutory or consensual lien on their collateral.  This is primarily because section 552(a) of the Bankruptcy Code provides, in part, that "property acquired by the estate or by the debtor after the commencement of the case is not subject to any lien resulting from any security agreement . . . ."  In other words, consistent with the concept that a debtor receive a 'fresh start' following a bankruptcy discharge, section 552(a)* strips certain secured creditors of liens in the post-petition property received by a debtor.  However, section 552(a) does not apply if a creditor is secured by a statutory lien; a statutory lien 'flops over' the petition date and attaches to post-petition receipts of a debtor.