Knowing what type of lien a creditor holds is important for determining how you can deal with the lien in bankruptcy. This can get confusing, especially where the creditor has a non-consensual lien, which is a lien that you did not agree to.
Here's a primer on the types of liens you may encounter.
(To learn how to get rid of some of these liens through bankruptcy, visit the Dealing With Liens in Bankruptcy topic area.)
A voluntary lien is created when you agree to give a lender, such as a mortgage or car loan lender, an interest in your property to serve as security for a loan. Voluntary liens induce creditors to lend you money by providing extra assurance that they will get their money back. For example, when you purchase a home and take out a mortgage, you give the lender a voluntary lien on the property.
Like voluntary liens, a non-consensual lien is an interest in your property that is granted to a creditor to secure a debt you owe. The difference is that a non-consensual lien was obtained by the creditor involuntarily, or without your agreement. Most non-consensual liens come into play after you have failed to pay an obligation that was not generally thought of as secured.
Most non-consensual liens fall into two categories–those that are created by law and those that are created by a court.
Statutory liens. Non-consensual lien rights that are granted by law are called statutory liens.
Judicial liens. Those that result from court action are called judicial liens.
No matter what their basis, these liens can cloud the title to your home, interfere with the sale of your property, tie up your bank account, reduce your paycheck and, sometimes, result in your property being sold to satisfy the debt to the creditor.
Statutory liens can be created by federal or state laws. The property that is affected depends on what the lien attaches to. When a lien attaches to property, it gives the creditor a secured interest in that property which the creditor may be able to pursue and have sold to satisfy the debt. Here are just a few examples of common statutory liens.
Federal and state governments have laws that grant taxing authorities liens on your property to secure unpaid taxes. The requirements for turning an unpaid unsecured tax obligation into a tax lien are set out in the statute that creates the lien rights and can vary substantially between states. Commonly, liens for unpaid real estate taxes attach, or become linked, only to the property for which the tax was owed. Other tax liens, such as liens for unpaid federal income taxes, attach to everything you own, real estate and personal property.
Most states have some form of mechanic lien statute. These liens apply when you have had work done on your property and have failed to pay for it. You could end up with a mechanics lien on your property if you had your roof repaired or replaced and failed to pay for it.
Most statutes provide some definition of the type of work for which a mechanics lien is allowed. The statutes also generally set out procedures to enforce a mechanics lien as well as procedures for the property owner to contest the lien if the work wasn't done or there was some problem with the work. There are often strict time deadlines.
Condo liens are often considered to be statutory liens but this varies by state. The same is true for homeowners association liens. Check with a local attorney for more information.
Many states provide landlord liens to allow the landlord to recover unpaid rent. These generally apply to commercial, or business, leases and provide the landlord with a lien on the business equipment and inventory if rent is not paid. Often there are strict requirements that must be met before the landlord can exercise lien rights.
Judicial liens result from some form of court action. While state, and sometimes federal, laws often provide a basis for judicial liens and determine the property that they attach to and the procedures that must be followed to enforce judicial liens, they are not considered statutory liens because they are granted only through court action. Here are some common examples of judicial liens.
All states provide for judgment liens. In many states, you must record a certified copy of your judgment in a public registry before your judgment actually becomes a lien on property. Check with a local attorney to find out the proper procedures in your area.
This type of lien attaches to your money or property held by anyone who is served with a garnishment or attachment order. They are often used to seize bank accounts or wages. These types of orders are generally used as collection methods after a judgment has been entered against you. The lien stays in place until the court decides whether the creditor can use your money or property to pay down the judgment or if it should be released to you. In the case of a continuing wage garnishment, the lien stays in place until the creditor is paid in full or the garnishment is released.
In many states, a custodial parent can obtain a lien on your property to secure past due, court-ordered, child support payments.