DEFINITION of 'Judgment Lien'

A judgment lien is a court ruling that gives a creditor the right to take possession of a debtor's real property if the debtor fails to fulfill his or her contractual obligations. A judgment lien may be made against an individual or business and allows the creditor to access the debtor's business, personal property and real estate, among other assets, to pay the judgment.  A plaintiff who obtains a monetary judgment is described as a "judgment creditor,” while the defendant becomes a "judgment debtor."

BREAKING DOWN 'Judgment Lien'

The creations of judgment liens can arise through a wide variety of circumstances. For example, if one person injures another in an accident through negligence, the injured person would likely sue for damages. If the person who affected the accident’s 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 would secure 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 a bank account.

A danger to liens on personal property is that a large portion of personal property has no title; therefore, liens are not officially recorded, and personal property could be sold off to a third party, who is unaware of the lien’s existence.

A judge could also place a lien on debtor's car, as a second example. In this scenario, if the debtor does not pay his or her creditor within a certain time period, the car would be used to pay off the remaining debt. This example extends to any truck, motorcycle, or other motor vehicle owned.

In most states, the judgment creditor must record the judgment via a county or state filing; however, 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.

Avoiding Judgment Liens

It is possible for one to avoid a nonconsensual judgment lien on property or vehicle in bankruptcy (deemed “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 exemption in at least some of his or her equity in the property; and
  • The lien would result in a loss of some or all of this exempt equity if the real estate or vehicle was sold.

It can be advantageous to use lien avoidance if and when available. This can be particularly beneficial if a lien can be fully wiped out although still helpful in the case of partial lien avoidance.

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