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A Perfected Lien Is Trumped: Must It Be 'Use It or Lose It'?

By Barbara M. Goodstein
April 01, 2016

As creditors well know, a lien holder must be vigilant in both perfecting and maintaining the perfection and priority of its lien. But even a creditor that properly maintains its lien may find that enforcement of (or more specifically, failing to enforce) that lien can affect priority.

A recent decision by the U.S. Court of Appeals for the Second Circuit, City of Concord, New Hampshire v. Northern New England Telephone Operations LLC (In re Northern New England Telephone Operations LLC), No. 14-3381 (2nd Cir. Aug. 4, 2015), is one in a line of cases analyzing when a lien holder, by electing to participate in a debtor's bankruptcy proceeding, risks extinguishing that lien. See Dan B. Prieto and Mark G. Douglas, “Second Circuit Rules That Lien Is Extinguished Under Chapter 11 Only if Secured Creditor Participates in Case,” LJN's Equipment Leasing Newsletter, December 2015, available at http://bit.ly/1Mi80Cw.

In another line of cases involving deposit accounts, courts in jurisdictions such as Florida, Illinois, Indiana, Nebraska, Oregon and Pennsylvania have been the site of an ongoing battle between creditors that garnish a deposit account to satisfy the debt of an obligor, and the bank where such obligor's account is maintained. See Barsco v. H.W.W., 346 So. 2d 134 (Fla. Dist. Ct. App. 1st Dist. 1977); Fifth Third Bank v. Peoples Nat. Bank, 929 N.E.2d 210 (Ind. Ct. App. 2010); One CW v. Cartridge World North America, 661 F. Supp. 2d 931 (N.D. Ill. 2009); Myers v. Christensen, 776 N.W.2d 201 (Neb. 2009); Davis v. F.W. Financial Services, 317 P.3d 916 (Or. Ct. App. 2013); In re Szymanski, 413 B.R. 232 (E.D. Pa. 2009).

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