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A lien is the legal right, or security interest, that a creditor has in a debtor’s property. If you buy a car, for example, you usually agree to a lien with the financing company. If you don’t make your payments, then your car could be legally seized to take care of the debt.
Or the Canadian Revenue Agency might file a lien on your home for unpaid taxes. The lien would not be removed until the taxes are paid. Or the money owed would be paid from the sale of the house. The judgment creditor would send a request to the land title office to ensure their judgment receives priority if the house sells or title is transferred to another name.
If someone, such as the CRA, has a lien on your property, then they also have the right to force its sale to get debt repayment. But in Ontario it can take many months and cost the creditor thousands of dollars in legal fees, so this is only usually done if a lot of money is at stake.
The priority in payments from a property sale, in order, are mortgages, builder liens, tax liens and judgments. So if the property is sold and there is not enough money to pay the mortgages and liens, then the judgment creditor could receive nothing.
Liens are for most part applied to secured debt – that is, debt secured by collateral that the creditor can recover if the debtor defaults. For example, a home loan would be secured by the mortgage for the house. Or in the case of a car loan, the car itself becomes collateral that can be repossessed if the creditor defaults on payment.
If you go bankrupt, not all secure debts are wiped out. For example, if you decide to keep your house, you would still have to make mortgage payments after a bankruptcy discharge.
As the name suggests, unsecured debts don’t have collateral for creditor security. So this would be things like credit card purchases and utility bills.
If people go bankrupt, they often believe that credit card companies can take back anything purchased on their credit cards. This is not necessarily the case, since the items purchased aren’t secured and don’t have liens on them.
Because creditors face greater risk with unsecure debt, these loans are usually made at a higher rates of interest (look at your credit card statement for evidence). So if you are trying to reduce your interest expenses, unsecured debt is the best place to start.
If you have credit problems and are facing foreclosure, you need to get the advice of a licensed and experience insolvency trustee, so you can learn your options.
At Doyle Salewski, we can help you solve your debt and budgeting crises, using our proven expertise and experience to achieve financial freedom and peace of mind. Contact us today for a free consultation, either through our Ottawa headquarters, 613-237-5555, or our fully bilingual Gatineau office, 819-776-7777. Email: [email protected].