Liens are a common point of conversation and interest when it comes to finances and legal matters, and it’s very important to understand how they work. An understanding of this term can help individuals not only avoid liens but also help them resolve the situation if they ever have a lien brought against them.
What Is a lien?
The easiest way to understand what a lien is and how it works is to think of it this way: a lien gives someone legal interest in another person’s property as security or collateral. They’re meant to protect a creditor until a debt or another obligation has been fulfilled.
There are a variety of different types of liens, including consensual, statutory, or non-consensual liens, contractor or construction liens, and tax liens. For today’s post, we’ll be focusing on judgment liens and why you need to avoid them.
Why you should avoid judgement liens?
A judgment lien is a form of non-consensual lien that’s attached to your property without you agreeing to it. If a person or a company files a lawsuit against you in court and you lose the case, a judgment lien can be brought against you. If you fail to respond or you ignore the lawsuit altogether, a judgment lien can be brought against you when the court enters an automatic judgment known as a default judgment.
In Florida, a creditor can attach a lien in a few ways. For liens on real estate, the creditor must record the judgment with the county recorder in the Florida county where the debtor currently owns real estate or could purchase real estate in the future. If a creditor is attaching a lien to personal property, the creditor must file the judgment with the Florida Department of State.
Because judgment liens can be imposed without your consent, it isn’t uncommon to be unaware of this lien existing in the first place. A judgment lien can result in a variety of issues that can have a profound impact on your life and your finances, which is why it’s critical to avoid judgment liens in the first place.
Here are some of the different types of property a judgment lien can attach to:
• Real Estate:
In Florida, a recorded judgment lien could affect your ability to sell your home or land, and you’ll run into problems when you try to do this. The lien will affect the real estate you own in the county where the creditor recorded the lien, or where the court entered judgment. Without significant equity in a property, a creditor may not choose this method because of how costly selling real estate can be once they acquire it. The creditor will only receive the amount that remains after they pay off mortgages, other liens, and sales costs.
• Personal Property:
In several states, including Florida, a judgment lien can be brought against your personal property (this refers to property other than real estate) which can include jewelry, antiques, and other valuables. These don’t tend to be an effective route, however, because it often isn’t worth the effort of acquiring it or it can be protected with an exemption.
• Vehicles:
In some states, a judgment creditor can file a judgment with your state motor vehicle department on a car, truck, motorcycle, or another motor vehicle you own.
• Future Property:
Let’s say you don’t currently own any property, but a judgment lien is brought against you. If you attempt to acquire property down the road, any active judgment liens recorded in your county will usually attach to the property you’re acquiring if the lien hasn’t expired.
Florida Judgement liens
In Florida, liens against personal property are valid for five years from the initial filing date, but the law also allows judgment liens to be filed a second time to extend its validity for another five years. Liens encumbering real property are valid for 10 years and may be renewed for another ten years.
Each state will have its own laws regarding exempt property. In Florida, certain property is exempt from seizure, including one motor vehicle worth under $1000, an additional personal property item worth $1,000 or less, as well as the primary home (a homestead exemption).
We discuss a lot more about homestead exemptions in Florida in this informative post on our website.
Now that we’ve explored some of the consequences of a judgment lien, let’s discuss what you can do to avoid them.
Avoiding judgement liens
In some cases, you can avoid a judgment lien when you file Chapter 7 bankruptcy, but there are a few conditions which must be met:
1. First, the lien must have come from a money judgment issued by a court.
2. Next, you must be entitled to claim an exemption in at least some of your equity in the property.
3. Finally, a lien would need to result in the exemption being impaired if the property were sold.
If you’re interested in how to file bankruptcy on disability and SSI, click here for a blog post where we discuss both scenarios.
what about chapter 13 bankruptcy?
Another bankruptcy case that can help you resolve a judgment lien is through a chapter 13 filing. This can happen in one of two ways: a lien cramdown or lien stripping.
As in a Chapter 7, you may avoid a judgment lien to the extent it impairs an exemption in a Chapter 13 Bankruptcy case.
In addition, you may “cramdown” the judgment lien in a Chapter 13 Bankruptcy. You pay only the value of the property encumbered by the judgment lien and not the full amount of lien.
If you have questions about judgment liens or bankruptcy, contact us today for a free consultation.