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Bankruptcy, Levies, and Liens

When struggling with financial problems, you run into many legal and financial terms that can be confusing.  Some of these terms relate to actions that creditors can take against you.  And in many cases, bankruptcy offers a reprieve against such actions and the chance to become solvent again.

What is a lien?

A “lien” is a legal claim giving the creditor security that the debtor's assets and collateral could serve as payment for debt.  However, a lien does not force immediate debt payment.  For example if you have a lien on your house (like a mortgage), it means that the creditor is entitled to be paid from the proceeds from the sale of the property.  A creditor can also enforce its lien through foreclosure or repossession.

What is a levy?

A levy is a court approved judgment allowing a creditor to seize or attach property.  Through a levy, the creditor might take money from your bank account to satisfy a debt.  Once the court issues a levy, your bank account is frozen and you cannot access money from the account until the creditor receives the debt payment.  To obtain a levy, the creditor must win a judgment against you.

The Internal Revenue Service (IRS) (http://www.irs.gov/businesses/small/article/0,,id=108341,00.html) points out that a levy is a legal seizure of property whereas a lien is a security claim against property.  The IRS uses liens and levies to collect past due taxes.  Examples of property that it can seize include—

  • Houses
  • Cars
  • Boats
  • Wages
  • Retirement accounts
  • Dividends
  • Bank accounts
  • Licenses
  • Rental income
  • Accounts receivables
  • Cash loan value of life insurance
  • Commissions

Whenever a creditor brings a lien or levy against you, it is time to discuss your situation with an experienced bankruptcy lawyer who can advise your best course of action.

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