When the Creditor Gets a Lien Against Your Property

Learn what can happen when a creditor has a lien against your real estate or personal property.

Why do liens exist? Simply put, property liens help creditors get paid. Not only will a lien give a creditor rights to your property, but a buyer won't agree to buy the property until you remove the lien, and a lender won't finance it either.

If you're concerned about property liens, you'll want to learn:

  • how a creditor gets lien rights
  • what a creditor with a lien can do, and
  • ways to remove a lien.

Because liens and financial problems go hand in hand, filing for bankruptcy could be part of the solution. To make it easier to learn how bankruptcy works, we've put together a few things you should know about bankruptcy.

Also, our quick ten-question bankruptcy quiz can help you figure out if bankruptcy would help solve your financial problems. Ultimately, a lawyer will be in the best position to advise you about lien issues.

How a Creditor Gets a Lien Against Your Property

Not all liens arise in the same way. Here are the three primary lien types you might encounter:

  • Voluntary lien. A borrower can agree to a voluntary lien when purchasing property. For instance, home or car lenders regularly require borrowers to put up the purchased house or car as collateral by granting the lender a lien. The lien allows the lender to reclaim the property if the borrower fails to pay as agreed. You can also expect to give a voluntary lien when financing items like jewelry, electronics, mattresses, furniture, and large appliances.
  • Judgment lien. This type of lien arises when a creditor wins a collection lawsuit. Some states automatically impose a lien on the losing person's property. Others require the winner to record real property liens where the real estate is situated and personal property liens with the appropriate state agency.
  • Statutory lien. Liens like mechanics, tax, and student debt liens aren't voluntarily, and the lienholder doesn't need to win a judgment to get one. A law grants the lien right when the borrower fails to pay the debt. Learn about tax liens in bankruptcy.

For more detail, read about different types of liens.

A Creditor Lien Against Your Property Ensures Payment

So why would a creditor want a lien? It is a powerful way to make sure you pay a debt. For instance, most liens will give the creditor the following rights:

  • a property interest until you pay your debt
  • payment if another creditor seizes or forecloses on the property, and
  • the ability to force a property sale.

Because liens often get paid when selling or refinancing property, many creditors sit back and wait for that day to come. Here's how it works.

Because liens stay with the property, typically, a buyer will do a title search and require the seller to remove any lien discovered before finalizing a sale. Lenders also condition financing on a clean title free of liens. Keep in mind that lien laws, protections, and procedures vary by state.

How to Get Rid of a Creditor Property Lien

The easiest way to get rid of a lien is obvious—pay the underlying debt. But that isn't always possible. Here are other options:

  • Return the property. If you need a lien removed from a credit report but can't pay the debt—and you can do without the property—returning the property might work. However, your state laws will determine whether you exchange one problem for another. For instance, if you return a car and the lender sells it for less than what you owe at auction, the lender might go to court for a deficiency judgment after repossession.
  • File for bankruptcy. Bankruptcy doesn't automatically get rid of liens, but you'll qualify for an exception in some instances. For example, a bankruptcy judge will set aside a judgment lien if it prevents you from taking advantage of a property exemption (exemptions protect your property from creditors in bankruptcy). You can also eliminate liens by paying what you owe using a Chapter 13 payment plan. Start by learning about lien stripping and "cramdowns" in Chapter 13 bankruptcy.

If you're worried about liens, you likely have other debt issues. Even if you can't eliminate a lien in bankruptcy, improving your finances by discharging (erasing) qualified debt can free up the funds you need to solve your lien issue.

Navigating a Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.

Related Information

How Much Debt Do You Need to File for Bankruptcy?

Will I Lose All My Property If I File for Bankruptcy?

How Long Before Filing for Bankruptcy Are You Supposed to Stop Using Credit Cards?

The 341 Meeting of Creditors Explained

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

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