Redefining Possessory Liens in Bankruptcy : Property, Contract, and What It All Means

Possessory liens are one of the long-established property rights acknowledged by the law. Under certain conditions, a creditor will be entitled to withhold an asset owned by the debtor until the latter repays his debts. The creditor will gain priority over other creditors, even creditors that hold security interests over the same property which were perfected prior to his possession. This Article examines the current available justifications for the preferred position of possessory lien holders in bankruptcy. This Article shows that none of the property-law-based arguments explored is persuasive when the debtor is insolvent as they are not coherent with other legal institutions and principles in bankruptcy. Instead, the analysis presented offers a contract-based approach to possessory liens, one that is founded on contractual logic and doctrines. Finally, the implications of this innovative perspective of possessory liens are shortly explored by examining the way it corresponds with the law governing possessory liens. A legal arrangement that will more efficiently balance between the parties involved is offered