There are basically two types of debts: secured and unsecured debts. Secured debts are attached to specific assets while unsecured debts are not. If a debtor fails to settle the debt in question, the creditor can use the court system to seize the lien in question.
A lien is a legal provision that allows the creditor, or lienholder, to take legal control over the debtor’s property for purposes of settling owed debt. Basically, a lien gives the creditor a right over specific assets attached to the debt in question.
Here are two types of liens every creditor need to know:
A consensual lien, as the name implies is voluntary, meaning that the debtor voluntarily attaches specific assets to a loan or an advanced credit. Think about collateral. An example of a consensual lien would be when a homeowner voluntarily takes a loan against their home. In this case, the home does act as the security for the debt. In an event that the debtor defaults, the lender can foreclose and sell the home to offset the debt.
Statutory liens are created and governed by state and federal laws. An example of a statutory lien is a mechanic’s lien. These liens apply when you fail to pay a contractor who has worked on your property. Tax liens are another example of a statutory lien. These liens are placed against the debtor’s property by the local, state or federal government as specified by the statute. These liens apply to tax cheats (income, property and estate taxes).
A lien gives the creditor the legal right to assume control over the debtor’s property for purposes of settling outstanding debt. Find out how you can protect your rights while using liens to recover debts owed to you.