In a Chapter 13 proceeding, an individual debtor with regular wages or income agrees to pay back a portion of his or her debts over a period of three to five years. One of the most common types of bankruptcy filings, Chapter 13 is available only to individuals.

In a Chapter 7 filing, the debtor's personal liability for dischargeable debts is erased (not all debts are dischargeable). However, liens that are not subject to elimination (i.e., most consensual and statutory liens) survive the discharge. This fact explains why a homeowner must continue to pay the mortgages on his home, or face foreclosure, after a Chapter 7 action is completed, even though personal liability for the mortgages is eliminated.

Certain debts will not be discharged in a Chapter 7 bankruptcy. These include:

Once the petition is filed and the bankruptcy estate is created, the bankruptcy trustee will begin to "marshall" the estate's assets. The trustee has the power to undo ("avoid") a transfer of money or property that occurred before the bankruptcy was filed if these transfers are considered "preferential" transfers. These "preferential transfers" will be brought back into a Chapter 7 bankruptcy action and included in the assets available for liquidation.

Filing a Chapter 7 bankruptcy creates a "bankruptcy estate" that is administered by a bankruptcy trustee. This estate technically becomes the temporary legal owner of all your property, including all legal or equitable interests you have in property as of filing of the petition, including property owned or held by another person if you have an interest in the property. The primary role of a Chapter 7 trustee is to liquidate your nonexempt assets in a way that brings in the most money for your unsecured creditors.

In a bankruptcy proceeding, it is possible to eliminate a non-purchase-money, non-possessory security interest lien in exempt property, if the property consists of:

Traditionally, Chapter 7 has been the most common type of bankruptcy proceeding. It is available to an individual, a partnership, or a corporation or other business entity.

As a last resort in your asset protection plan, you may have to file for bankruptcy. Therefore, it is important that you have a basic understanding of the bankruptcy code in order to properly structure your exempt assets.

When battling liens against you, all of this asset protection planning has another ancillary benefit that serves your goals: The more judgment-proof you make yourself, the less likely it will be that a creditor will bother to pursue a case against you., Or at the least, you may be able to influence a settlement, possibly soonerrather than later. All of these options have their obvious benefits.

The Federal Trade Commission's (FTC) Credit Practices Rule can be used to invalidate certain types of liens against household property. Remember, an invalid lien can be eliminated whether it is attached to exempt or nonexempt property.

When battling liens against you, a small business owner may be able to invalidate certain types of liens. Liens that are invalid, of course, cannot impair any assets, whether they are exempt or nonexempt.

When battling liens against you, it's important to note that lien stripping is not available for a lien secured solely by a personal residence. This provision was added to the bankruptcy law in 1994.

When battling liens against you, a small business owner may at some point find it necessary to consider filing bankruptcy to protect an exempt asset. Therefore, every small business owner should have an understanding of some bankruptcy basics. However, one specific bankruptcy rule regarding lien elimination can be an important factor if you are a small business owner trying to decide how to finance your business.

When battling liens against you, only certain types of liens can be eliminated, and then only if the liens are attached to exempt assets.

When battling liens against you, the types of liens on exempt assets that can be eliminated depend, to some degree, on whether you are involved in a state court proceeding or a bankruptcy proceeding. The general rule is that, in either proceeding, only judgment liens against exempt property can be eliminated. However, even certain judgment liens cannot be eliminated.

To eliminate a lien, there are three conditions that must be met. The first condition--that the asset be exempt from levy--is really self-explanatory. Either an asset is exempt under the applicable state or federal law or it is not. If the asset is not exempt, a lien against it can't be eliminated on the grounds that it impairs an exemption.

When battling liens against you, the ability to eliminate judgment liens on exempt assets can be highly significant to the small business owner.

When a creditor tries to get at your assets and attempts to enforce a lien against your protected property, in a state court or bankruptcy proceeding, that lien may be invalidated or eliminated if it is a judgment lien or a lien attributed to a court judgment, where the court judgment itself is the basis for the lien. Or you may be able to bifurcate the lien, stripping away some of its value, in bankruptcy court.

Of the three types of liens, this is the most dangerous form, but one which the informed business owner may be able to eliminate. A judicial lien is created when a court grants a creditor an interest in the debtor's property, after a court judgment.

There are many different types of liens that creditors can use to get at your assets to satisfy a debt. In certain circumstances, creditors obtain security interests by the operation of state (or federal) laws. These liens include:

Creditors can be unsecured or secured. An unsecured, or general, creditor has a general claim against a debtor, which is not secured by any particular asset of the debtor. An unsecured creditor has the weakest claim, which may go unpaid. However, an unsecured creditor may become a secured creditor after a lawsuit and judgment. A secured creditor, who has a claim on a particular asset, can use the court system to seize the asset and to satisfy the debt. This clearly presents a significant risk for the business owner.

Of the different types of liens, these are liens to which you voluntarily consent, as a result of a loan or other advance of credit. A homebuyer consents to a bank taking a security interest in the home when a mortgage is obtained. A security interest also is created when a car dealer arranges for financing for a car buyer. The property purchased secures the buyer's obligation to pay for the property.

The world's economy is dependent on billions of debtor-creditor relationships. At every level, goods and services are provided in exchange for a promise, explicit or implicit, to pay for those goods and services.

Opening a business is a risky venture. However, a comprehensive asset protection plan can eliminate or significantly reduce these risks, and shield business and personal assets from the claims of creditors, should something go wrong. (Asset protection planning is just one aspect of business formation; see our detailed discussion of starting a small business.)

Wouldn't every entrepreneur love to have a small business guardian angel? Not an advisor, mind you, because there is plenty of advice available these days for small business owners. But an honest-to-goodness guardian angel, surfacing only at your most dire moments, salvaging a situation from total ruin.