When you cannot afford to pay your debts, your account may eventually be turned over to a collection agency in an attempt to get you to pay. If you still cannot pay, the collection agency may try to file a lien against your property. If the property is jointly owned, this could put the co-owner in an awkward position.
Placing the Lien
When a collection agency cannot get you to pay, it has the option of filing a civil lawsuit against you in court. If you cannot disprove that you owe the debt, the court will usually award a judgment against you. At that point, the creditor can use the judgment by placing a lean against certain property that you own. Then when you try to sell the property, the creditor can collect the money owed.
Joint Property
When you own a piece of property jointly with another individual, this does not protect that property from having a lien placed on it. For example, if you have a car that you own jointly with your father, a collection agency can attach a lien to that car until the debt is repaid or the car is sold. Even if this negatively affects the other owner of the car, the creditor has the right to place that lien on the car.
Vehicle Is Sold
If a lien is placed on a jointly owned vehicle, the creditor can eventually be paid back when the car is sold. In this situation, the creditor is entitled to the amount of money that it is owed. Depending on state law, the creditor may only get half of the sale price as the other owner has a legal right to half of the car. In some cases, part of the money from the sale that belongs to the co-owner could be taken for the debt.
Considerations
If you know that you are about to be sued for an outstanding debt by a collection agency, you may be tempted to try to transfer ownership of the vehicle solely to your co-owner. While this could work in some situations, it can be considered a fraudulent transfer to avoid creditors. When this happens, the transfer could be negated and still included as part of the judgment against you. When dealing with creditors, you must act in good faith to avoid further legal action.
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