In some circumstances, a creditor can get a lien on your property without your agreement. These are called nonconsensual liens.
In theory, a nonconsensual lien gives the creditor the right to force a sale of the property in order to get paid. In practice, however, few creditors exercise this right because forcing a sale is expensive and time-consuming. Instead, they typically wait until you sell or refinance the property, at which point the lien has to be paid off with the proceeds, to give the new owner or lender clear title to the property.
For bankruptcy purposes, there are four types of nonconsensual liens:
A judgment lien can be imposed on your property only after somebody sues you and wins a money judgment against you. (To learn more, see What Is a Judgment Lien?) Judicial liens can be removed as part of your bankruptcy case. (See Getting Rid of Judgment Liens in Bankruptcy.)
In some states, a creditor who seeks to collect a judgment under a writ of execution automatically obtains an “execution” lien on your property. Like judicial liens, execution liens can be removed (avoided) as part of your bankruptcy case.
Some liens are created by law. For example, in most states, when you hire someone to work on your house, the worker or supplier of materials is entitled to obtain a mechanic’s lien (also called a materialman’s lien) on the house if you don’t pay. In some states, a homeowners’ association has the same right if you don’t pay your dues or special assessments.
Statutory liens affect only your real estate. They don’t attach to your personal property, such as a car or equipment.
Federal, state, and local governments have the authority to impose liens on your property if you owe delinquent taxes. If you owe money to the IRS or another taxing authority, the debt is secured only if the taxing authority has recorded a lien against your property (and you still own the property) or has issued a notice of tax lien, and the equity in your home or retirement plan is sufficient to cover the debt. For example, in these times of upside down or underwater mortgages, a debt to the IRS may be unsecured even if a lien has been imposed on your home, if you don’t have enough equity to secure the debt.
If you don’t pay an IRS bill, the IRS can record a Notice of Federal Tax Lien at your county land records office or your secretary of state’s office. While the federal tax lien attaches to all of your property, for practical purposes a lien will be effective only if your real estate equity, your retirement account, or your bank account is sufficient to cover the debt. Similarly, your local government can attach a lien to your real estate for unpaid property taxes. And, if your state taxing authority sends you a bill and you don’t contest or pay it, the state can record a tax lien against your real estate in that state. (To learn what happens to tax debts in bankruptcy, see Tax Debts in Chapter 7 Bankrutpcy.)
To learn how liens are treated in bankruptcy, see Avoiding (Getting Rid of) Liens in Bankruptcy.