Judgment Lien: Definition, Examples, Vs. Property Lien

What Is a Judgment Lien?

A judgment lien is a court ruling that gives a creditor the right to take possession of a debtor's property if the debtor fails to fulfill their contractual obligations. This lien may be made against an individual or a business and allows the creditor to access assets such as the debtor's business, personal property, and real estate to satisfy the judgment.

How Judgment Liens Work

If you owe money to a creditor and don't pay, they may sue you for the balance. If the court rules against you, the creditor can file a judgment lien against you. A judgment lien is considered a nonconsensual lien because it is attached to a piece of property without the owner's consent or agreement.

A plaintiff who obtains a judgment is referred to as a judgment creditor, while the defendant becomes a judgment debtor.

In most states, the judgment creditor must record the lien via a county or state filing. In a few states, if a court enters a judgment against a debtor, a lien is automatically created on any real estate the debtor owns in that county.

Once a judgment lien is filed with the appropriate authority, it becomes attached to the debtor's personal or real property. Personal property refers to assets such as cars, appliances, or furniture. Real property, on the other hand, refers to things like homes and other buildings, or land.

The property must be registered in the debtor's name, so if they have a debt that goes unpaid, the judgment lien cannot be attached to their spouse's property. If they do not own any property at the time the lien is filed, it can be attached to any future acquisitions—provided the lien doesn't expire in the meantime.

One drawback of liens on personal property is that a large portion of someone's personal property has no title. Therefore, liens are not officially recorded against that property, and it could be sold off to a third party who is unaware of the lien's existence.

What Debtors Can Do

There are a few ways a debtor can satisfy or avoid a lien altogether. The first—and most obvious—option is to repay the debt. If they pay off their obligation, the creditor will remove the lien. This is done by filing a release through the same place the lien was recorded—the county or state.

It is also possible to avoid a nonconsensual judgment lien on a property or vehicle in bankruptcy—referred to as lien avoidance—if the following conditions hold true:

• The lien must have been derived from a court-issued money judgment.
• The judgment debtor must be entitled to claim an exemption for at least some of his or her equity in the property.
• The lien would result in a loss of some or all of this exempt equity if the real estate or vehicle was sold.

Using lien avoidance can be an advantage to the debtor if and when it's available. This can be particularly beneficial if a lien can be fully wiped out, although it's still helpful in the case of partial lien avoidance.

Examples of Judgment Liens

If one person injures another person or their property in an accident through negligence, the injured person may decide to sue for damages. If insurance does not cover the injured party's required reparations, a judgment lien may be placed against the negligent person's property. The creation of this judgment lien secures payment of the claim. If the debt is not paid, the judgment creditor has the authority to take additional steps. These could include seeking enforcement of the judgment by garnishing wages and potentially seizing bank accounts.

Here's another example. A judge may place a lien on a debtor's car for nonpayment of a car loan. In this scenario, if the debtor does not pay the creditor within a certain time period, the car would be used to pay off the remaining debt. If there's a balance left over, the debtor is on the hook for that. This example extends to trucks, motorcycles, or other motor vehicles, as well.

Judgment Liens vs. Property Liens

While judgment liens are awarded by courts without the consent of the debtor, property liens are different. These liens are permitted by the debtor, who agrees to give up the right to their property if they are unable to pay what they owe. So, unlike judgment liens, property liens are considered consensual.

If you borrow a large sum of money—such as to buy a home or a car—the lender may require some form of security or collateral. In that case, the creditor may have a lien on that property. By doing so, the creditor knows it can foreclose on or repossess the property if you default on the loan and get at least some of its money back.

The Bottom Line

Judgment liens are imposed by courts in an attempt to force debtors to pay off their creditors. When a debtor receives a judgment lien, it's usually best to pay off the debt if that's at all possible,