If you default on a credit card, your creditors can pursue alternate ways of obtaining their money, including sending you to a collections agency, garnishing your wages or levying your bank account. They can also place a lien on your property, which means if you sell it, you must use the proceeds to pay back your creditors before keeping any of the money for yourself.
Property Subject to a Lien
Creditors usually attach a lien to your home, but can also attach it to other property such as your vehicle, boat or land. They can also place a lien on valuables like art, collectibles and antiques. Creditors can attach a lien even if you co-own the property with another person, such as a spouse, who does not owe the creditor. Some states offer exemptions regarding how and when creditors can seize property with a lien on it. For example, if you have equity in your home, that amount might be exempt from seizure by the creditor.
When a Creditor Can Impose a Lien
Before creditors can place a lien on your property, they must file a lawsuit against you and win a court judgment. Many creditors win judgments because the debtor did not respond to the lawsuit in writing or appear in court. In those cases, called default judgments, the court automatically judges in the creditor’s favor, and the creditor can place a lien on your home, car or other property. Some courts automatically grant creditors a lien when they win a judgment, while others require creditors to request a lien through the government agency or office that oversees property, such as the county recorder’s office or county land records office.
Effects of a Lien
In theory, anyone holding a lien can force the sale of the property to satisfy the unpaid debt. Credit card companies rarely take this measure in the case of a private home, however, because the mortgage company would receive proceeds from the sale before any other creditors or lien holders. This usually leaves little to nothing for the other creditors, making it not worth their time or money. Instead, they’ll wait until the owner sells the home or property, in which case the lien must be paid before the title is cleared. Having a lien can also lower your credit score and can stay on your credit report up to seven years. To remove the lien, you must pay back what you owe your creditors, either in full or by negotiating a settlement.
Liens Can Expire
If a creditor places a lien on your property, it is valid only as long as the judgment against you is valid. State courts limit the amount of time a creditor can collect on a judgment, and the creditor must renew the judgment before continuing collection efforts. In Illinois, for example, a debt collector may have 10 years to use the legal system to collect the debt if there was a written contract. A lien against your assets expires when the judgment does, and you can then sell your property without giving any of the proceeds to creditors. However, if you live in a state that allows renewal of judgments, your creditors can renew their judgments against you indefinitely, leaving your property permanently tied up.
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