When you owe a creditor money and you hear the term "establishment of a lien" it means that your creditor is putting a claim against some of your personal property. This is done so that it will eventually force you to repay the debt that you owe. Creditors must go through a legal process before a lien can be placed.
How Liens Work
When a creditor places a lien on your property, it is like putting a claim in on that individual piece of property. You will not be able to sell the property until the debt that you owe the creditor is repaid. Once you repay the creditor, it will remove the lien from your property. In some cases, you may have to use the proceeds from the sale of the property to repay the debt that you owe.
Voluntary Establishment
In some cases, you can voluntarily establish a lien against your property. This is commonly done when you buy a house or a car. With either one of these processes, you allow the lender to put a lien on the property when you buy it. This way, if you do not make your loan payments, the lender can foreclose on the property and take possession of it. Then the lender can sell the property to recoup the costs of the loan.
Creditor Liens
In other cases, liens can be placed on your property involuntarily. For example, when you owe money to a contractor, it can place a mechanics lien on your property if you do not pay your bill. Creditors can also file a civil lawsuit against you and get a judgment from a court. Then once the creditor has the judgment, it can use it to establish a lien on your property. If you owe taxes to the local or federal government, you can also have a lien placed on your property until they are paid.
Considerations
If you have a lien on your property, you need to consider the impact that it can have on you. Liens can show up on your credit report and make it difficult for you to get additional financing in the future. They can also cut into the amount of equity you have in a piece of property when it is sold. If you have a lien, you can pay off the balance you owe or in some cases, set up a payment arrangement and request that the lien be removed.
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