Are Judgment Liens Secured or Unsecured Debt?

After winning a court judgment against a debtor, a creditor has several collection options at its disposal -- one of which is a judgment lien. A creditor can file a judgment lien on an individual's personal property or against real estate the debtor owns. Not all states grant private creditors, such as debt collectors, the legal right to place a lien against an individual's property following a court judgment.

Types

Unsecured debts do not attach to property. Creditors extend unsecured debt to debtors based on credit scores and the promise that the individual will repay the debt. Property liens of any type, including judgment liens, give a creditor a security interest in a debtor's property and thus are secured, rather than unsecured, debts.

Significance

Although a secured debt, a judgment lien typically arises from nonpayment of unsecured debt. Secured creditors, such as a mortgage company, already have a security interest in a debtor's property. In the event the individual doesn't make timely payments, a secured creditor can seize the secured property as payment -- usually without the need for a lawsuit. An unsecured creditor has no such right. Thus, it must take the debtor to court and obtain a court judgment in the amount of the debt. The creditor then uses the court judgment to create a lien against an individual's assets.

Function

Although a judgment lien can remain attached to a piece of property when the property is sold or transferred, if a debtor wants to find a buyer, he'll likely have to first pay off the debt and have the lien released. Banks won't finance a buyer to purchase a home or vehicle with pre-existing liens. Thus, creditors place liens against property in the hope that a need to sell or refinance will force the debtor into paying off the judgment.

Time Frame

Specific laws in each state govern how long a court judgment remains enforceable by a creditor. Once the judgment itself is no longer valid, any liens created by the judgment lose their validity. Even if a state permits creditors to renew their court judgments for a subsequent term, the initial lien created by the court judgment will expire on the date the judgment was scheduled to expire. A creditor must then re-file its judgment lien based on the judgment renewal.

Considerations

As a secured debt, a judgment lien grants the creditor the right to seize the property as payment of the original judgment. In doing so, however, the creditor must first pay off any lien holders who filed property liens before its judgment lien went into effect. If a property carries multiple liens, it isn't financially advantageous for a creditor to attempt a property seizure -- especially if the value of the property's liens exceeds the value of the item itself.