You assume a lower risk with unsecured debts because they do not provide your lender with a security interest in any of your assets. Should you default on your repayment obligations, this lack of a security interest prohibits the lender from seizing any property you own. Unsecured debts can become secured debts following a lawsuit.
Facts
A lender that hasn't received prompt payment on an unsecured debt can file a lawsuit against you in court. If the lender wins the suit, the judge will grant a judgment and most states subsequently provide the lender with additional collection options, such as garnishment and property liens. When a lender places a property lien on any of your personal property after a lawsuit, your unsecured debt becomes secured by the property that carries the lien.
Effects
As a lien holder, the formerly unsecured creditor has the legal right to seize the property carrying the lien in lieu of payment on the debt. In addition, you cannot easily sell or transfer ownership of a home or car until you have paid off all outstanding liens. In this way, your creditor increases its chances of you voluntarily repaying the debt that you owe.
Time Frame
A judgment against you will eventually expire and the lender's right to seize your property will expire with it. Once a judgment expires, your lender cannot enforce the judgment and seize your property.
If your state's laws permit judgment renewal, you won't face a second judgment, but your lender will have the right to renew its original judgment for a second term. Should it do so, its property lien against you will still expire. To maintain a secured hold on your assets, the lender must file a second lien against your property after renewing its judgment. Not all lenders take the time to do this.
Considerations
While a lien gives a creditor the right to seize your property, few creditors take advantage of this option -- especially with real estate liens. If a creditor were to seize the property, it would bear the legal obligation of paying off any liens that other creditors previously filed. In many cases, the time and expense involved with seizing your property, paying off other creditors' liens and selling the item in question wouldn't leave the creditor with enough profit to merit it seizing your assets -- especially if the value of your property is less than the value of the liens it carries.
Features
Not all creditors have the right to sue you and place a lien against your property. If your state's statute of limitations has already expired or your state only grants liens to government creditors, creditors cannot use the threat of seizing your property as a tool to frighten you into paying a debt. Doing so is a violation of the Fair Debt Collection Practices Act, which prohibits collectors from threatening to take action they either cannot legally take or have no intention of taking.
0 comments:
Post a Comment