Explaining the Different Types of Property Liens

A lien is a creditor's legal claim against your property that secures a debt, and it falls into one of three categories: voluntary, statutory, or judicial. Bankruptcy treats each type differently. Voluntary liens like mortgages usually survive your case untouched, while judicial liens can sometimes be erased through a process called lien avoidance. Knowing what type of lien a creditor holds against your property is the first step to figuring out how to deal with it in bankruptcy.

How Does Bankruptcy Treat Liens?

Bankruptcy discharges your personal liability for a debt, but it doesn't automatically erase a lien on your property. What happens next depends on whether the lien is voluntary, statutory, or judicial.

• Voluntary liens such as mortgages and car loans usually survive bankruptcy untouched. You’ll need to keep paying the debt if you want to keep the property, or the lender can repossess or foreclose once your case ends. There are ways to reduce the balance owed in both Chapter 7 and 13.
• Judicial liens, most often judgment liens, can often be wiped out if the lien impairs your ability to protect the amount of equity covered by an exemption you're entitled to claim. You’d file a motion called a lien avoidance motion. The one major exception: a judicial lien that secures a domestic support obligation, such as unpaid child support or alimony, can't be avoided this way, no matter how much it impairs your exemption. (11 U.S.C. § 522(f).)
• Statutory liens (tax liens, mechanic's liens) generally can't be avoided, so they're tougher to shake even when they eat into your exemption.

Read on for how each type of lien gets created, and see what happens to liens in Chapter 7 bankruptcy for the full lien avoidance process.

Voluntary vs. Statutory vs. Judicial Liens: At a Glance

Here's a quick side-by-side look at how the three lien types differ and what that means once you file.

Voluntary Liens

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 give creditors extra assurance that they'll get their money back, which is why they're willing to lend in the first place. When you buy a home and take out a mortgage, for example, you're handing the lender a voluntary lien on that property.

Non-Consensual Liens

A non-consensual lien is one a creditor obtains without your agreement, usually after you've fallen behind on an obligation that wasn't originally secured. Like a voluntary lien, it still gives the creditor an interest in your property to back up a debt you owe. You just never signed up for it.

How Are Non-Consensual Liens Created?

Non-consensual liens fall into two buckets: those created by law and those created by a court.

• Statutory liens. Non-consensual lien rights granted by law are called statutory liens.
• Judicial liens. Those that result from court action are called judicial liens.

Either way, these liens can cloud the title to your home, interfere with a sale, tie up your bank account, reduce your paycheck, and sometimes lead to your property being sold to pay off the debt.

Statutory Liens

A statutory lien is a non-consensual lien created by federal or state law rather than by a court. What it attaches to depends on the specific law that created it, but once it attaches, it gives the creditor a secured interest that can be sold to satisfy the debt. Here are a few common examples.

Tax Liens

Federal and state governments have laws that grant taxing authorities liens on your property to secure unpaid taxes. The rules for converting an unpaid tax bill into a tax lien derive from the statute that creates the lien rights, and they vary substantially across states. Liens for unpaid real estate taxes usually attach only to the property on which the tax was owed. Other tax liens, like those for unpaid federal income taxes, attach to everything you own. Both real and personal property.

Mechanic's Liens

A mechanic's lien lets a contractor or supplier claim your property when you've had work done and didn't pay for it. Most states have some form of mechanic's lien statute, so you could end up with one if you had your roof repaired or replaced and never settled the bill.

Most statutes spell out what kind of work qualifies for a mechanic's lien, along with the procedures for enforcing it and contesting it if the work was never done or something went wrong. There are often strict deadlines involved, so don't sit on the problem too long.

Condominium Association Liens

If you have unpaid association assessments, payment can be secured by placing a lien against your unit. They're often treated as statutory liens, though that varies by state. A local attorney can help you determine how your state handles it.

Landlord Liens

A landlord lien allows a landlord to recover unpaid rent by seizing a tenant's business equipment and inventory. Most states that offer this remedy limit it to commercial or business leases, and landlords usually have to meet strict requirements before they can exercise it.

Judicial Liens

A judicial lien results from court action rather than from a statute or your agreement. State and sometimes federal law provide the basis for these liens and dictate what property they attach to and how creditors enforce them, but they're not statutory liens because a court, not a legislature, granted them. Here are some common examples.

Judgment Liens

A judgment lien lets a creditor claim your property after winning a lawsuit against you. Every state allows judgment liens, but in many, the creditor has to record a certified copy of the judgment in a public registry before it actually becomes a lien on your property. Check with a local attorney for the exact procedure where you live.

Garnishment or Attachment Liens

A garnishment or attachment lien attaches to money or property held by anyone served with a garnishment or attachment order, and creditors typically use it to seize bank accounts or wages as a collection method after a judgment has been entered against you. The lien stays in place until the court decides whether the creditor gets to keep the money or property or must return it to you. With a continuing wage garnishment, the lien remains until the debt is paid in full or the garnishment is released.

Child Support Liens

A child support lien lets a custodial parent secure past-due, court-ordered child support payments against your property. Many states offer this option. Unlike an ordinary judgment lien, a child support lien generally can't be removed through lien avoidance: 11 U.S.C. § 522(f)(1)(A) specifically excludes judicial liens that secure a domestic support obligation, so this type of lien survives bankruptcy even if it impairs an exemption you'd otherwise be entitled to claim.

Talk to a Bankruptcy Lawyer About Your Lien

Your options depend on the lien's type, the property it's attached to, and your state's exemption laws, so getting this wrong can cost you the property or your shot at removing the lien later. If a creditor has placed, or is threatening to place, a lien on your property, a local bankruptcy lawyer can walk you through your options before you file.

If you want to dig deeper into any of these lien types, a few related reads can help. See how a secured debt gets treated differently from unsecured and priority debt once you file, find out how to get a lien off your title after bankruptcy if one's already been removed in your case, and check state bankruptcy exemptions to see how much equity you can protect before a judicial lien becomes avoidable.