It’s the word you may hear when lenders start to discuss a loan. It’s the thing that may raise a few alarms if it pops up on your credit report. So what does lien really mean? Put simply, a lien is a legal right granted to a creditor to hold your property as security for a debt you owe. This means that if you fail to satisfy the debt, the creditor can lay claim to the property, be it your car, home, or another asset.
A lien may result from a court’s judgment or it may be an agreement between a creditor and a debtor. Either way, a lien is placed on assets which provides lenders some assurance that they can recover their money if the debt isn’t paid. They remain in effect until the debt is either satisfied or discharged in bankruptcy.
Types of Liens
Not all liens are the same. There are various types which may be applied, each with its own unique circumstances.
Tax Lien
One type of lien is the tax lien. If you owe taxes to the IRS, a tax lien may be placed on your property. This is generally a last resort after the IRS has already taken your bank account and other assets. This type of lien will follow you wherever you go and can stay in effect until the taxes are paid.
Judgment Lien
Another type of lien is the judgment lien. This happens if you fail to either pay or dispute a court judgment. In this case, the court will issue a lien which places you in breach of a court judgment. This lien will attach itself to your property as a way for creditors to recoup their losses.
Mechanic’s Lien
A mechanic’s lien is a lien placed when creditors believe they have not been fully or adequately paid for services rendered. This lien is usually put in place if a contractor or subcontractor fails to get paid for work they completed for a customer.
How Liens Affect Your Financial Future
Li ens have a huge effect on your financial situation. Liens can depress the value of your assets and affect your credit score, making it difficult to purchase a home or take out other loans. Also, if the lien is not addressed, it may eventually result the seizure or sale of the asset in question.
If you find yourself in a situation where a lien may be placed on your property or assets, the best thing to do is to seek legal advice. A lawyer can go over your options and help you formulate the best course of action.