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Q. Should a creditor file an objection when a debtor files for bankruptcy and claims mortgaged or encumbered property as exempt?

A. No. Pursuant to Bankruptcy Code section 522(c), a creditor's security is maintained through and after bankruptcy despite an exemption claim. Collier on Bankruptcy, § 522.27 (15th Ed. 1995). This is generally true unless the lien is subject to the trustee's avoiding powers.

The situation generally seen is one where Creditor has a lien on Debtor's property but the amount of Creditor's debt is less than the value of the property (i.e. Creditor has mortgage on Debtor's real estate. The real estate is valued at $50,000. Creditor's debt is $45,000.00). As stated above, the lien will not be affected by any exemption claim. However, the debtor can protect the excess. If the property is the homestead, Debtor could protect the excess with the homestead exemption. If the property is not homestead, the Debtor would have to use a floating exemption in order to protect the property from other creditors.