Debt is either unsecured or secured. Unsecured debt, like student loans, personal loans and credit cards have no collateral, which is often why they have high-interest rates. Secured debts, like real estate or car loans, have collateral, which may be in the form of a lien.
A lien is a creditor’s or lienholder’s legal claim over an asset. A lien is used on assets to secure the payment of debt. In other words, a debtor who’s obligated to pay off debt or a loan may find that their property has a lien. This allows creditors or lienholders to seize and sell the property to pay the outstanding debt from a borrower.
There are two kinds of liens you should know about:
A consensual lien is agreed upon between all parties and, thus, voluntary. A borrower may not be able to take a loan out without first discussing what will be taken to pay off unresolved debt.
A consensual lien, for example, may appear when a borrower wants a car loan. However, it’s decided that if the borrower doesn’t pay their debt, then their car will be repossessed. As such, the car has a lien on it, which the creditor or lienholder has a legal right to claim. Likewise, someone with a mortgage may have their home foreclosed if they’re unable to pay off their debt.
A non-consensual lien is imposed through common law, thus governed by the state and federal government. Since a non-consensual lien is created by the law and enforced by a court, then a borrower may face a lawsuit for not paying off their debt. In essence, this is a tool that creditors can use to try to gain some leverage when a debtor refuses to pay.
When collecting outstanding debt, it’s paramount that you understand your legal rights and exercise them to the fullest. You have a right to get paid.