Judgments & Liens 101: The Basics
If you own property & assets and are struggling with debt or dealing with collectors you have undoubtedly heard the terms ‘Judgment’, ‘Judgment Lien’, and ‘Lien’. These can be awfully confusing as they are often used interchangeably. In order to fully understand your rights as a property owner and what protections you have, it is important to understand the difference.
It should be noted the topic of judgments & liens can be extremely complex and it would be impossible to fully cover such a complex topic in a simple blog article. If you are struggling with debt, have a judgment registered against any of your property, or think you may in the near future please do not hesitate to reach out. We are also not lawyers. This article is intended for informational purposes and should not be relied upon to make legal decisions. Ensure you speak with the appropriate professionals.
What Is A Judgment?
In plain language, a judgment is simply a court’s decision in a court case. In debt-related cases, it is the money that is court-ordered to be owed by one party or the other.
The judgment process typically begins with a creditor to whom you owe money starting a legal claim against you requesting that the court grant them a judgment in their favour. If you file a defence, the court will usually hear both sides and then make a decision, or judgment, in the case. If you do not file a defence, a default judgment will typically be granted in favour of the creditor.
If the judgment is in the creditor’s favour, the court will issue a court order granting a judgment against you for the amount you owe and will generally include interest and any court costs.
Most debt-related judgments are obtained in Small Claims Court unless the amount you owe is large enough to warrant being heard at a higher level court. Small Claims Court deals with amounts up to $25,000 in Nova Scotia, $20,000 in New Brunswick, and $16,000 in Prince Edward Island. Amounts higher than these would be heard at the Supreme Court level.
The judgment then allows the creditor to apply for a seizure of assets, usually by registering on title of real property or personal property (like vehicles), and/or garnishing wages.
What is a ‘Judgment Lien’?
A judgment lien is a lien that is registered against your personal property (car, bank account, etc) or real property (land, house, cottage, etc). This lien gives the creditor an interest in your property and allows them to be paid in the event you sell or transfer the property.
In order for a creditor to place a lien on your property, they must first obtain a judgment against you from the court, unless you have previously given them permission.
What is a Lien?
A lien is simply an interest that one party (typically a creditor) has in another person’s property. A lien can be placed on your property on a voluntary basis or an involuntary basis.
Liens can be placed on houses as well as other property such as cars, boats, campers, etc. The term ‘Real Property’ refers to land, and anything that is fixed to the land such as homes, commercial buildings, etc. ‘Personal Property’ includes everything else.
Types of Liens
There are many types of liens that can be placed on your property including, but not limited to:
- Mortgage Lien: An agreement between you and a lender in which you pledge your property as security for a mortgage.
- Construction Lien: A lien that is placed on your property by a contractor, subcontractor, or supplier who has not been paid for work done on your property.
- Tax Lien: A lien placed on your property by the government for unpaid property taxes or even unpaid federal taxes.
- Voluntary Lien: A voluntary lien you have agreed to, typically in writing, such as a car loan or lease agreement.
- Mechanics Lien: A mechanic’s lien is a lien secured against a vehicle for work performed on a vehicle that has not been paid. Mechanics liens are fairly uncommon as usually, mechanics will often not release a vehicle until their bill is paid.
- Judgment Lien: A lien placed on your property by a judgment creditor to whom you owe money.
Some Liens Are Bad, Some Are Not
As you can see above, not all liens are bad. For example, a mortgage is a perfectly normal and healthy lien to have on your property. A CRA tax lien, however, is not so good.
Usually, if you are dealing with a creditor or collection agency, they will threaten to place a lien on your property as a way to get you to pay the debt. The good news is, in most cases, they cannot simply secure a property lien without first getting a judgment from the court.
If you have been served court paperwork you should reach out to a professional. The only Federally regulated and licensed debt professionals are Licensed Insolvency Trustees, such as Powell Associates Ltd. Learn about what exactly a licensed insolvency trustee is here.
CRA Tax Liens & What Makes Them Different
Canada Revenue Agency (CRA) is one notable exception to the rule that creditors need a judgment against you to place a lien on your property. CRA can, and will, place a tax lien on your property without first obtaining a judgment.
CRA will typically attempt to contact you several times, over several months (if not years) prior to placing a tax lien against your property. They will send you several letters and attempt to contact you by phone to let you know that you have unpaid taxes and what the next steps are. In addition, CRA can also garnish your wages, seize other assets, and even freeze bank accounts.
If you have a CRA lien on your house, you should take it very seriously and contact a professional as soon as possible. There are many complexities with any CRA tax lien that may be secured against your property; given those complexities, we will cover them in a future article.
How Can I Remove A Lien Or Judgment?
Removing liens and judgments can be incredibly simple to extremely complex depending on the types of liens and your financial situation. To put it simply, there are three main methods of removing a lien or a judgment that may be secured to real property or personal property.
Fulfilling the lien/judgment obligation
This means paying out the existing liens such as the mortgage, judgment amount, etc that you may owe on the property.
This may seem like an unlikely option, but in fact, most liens are paid this way; This occurs because most liens are vehicle loans, secured against a vehicle, or mortgages secured against a house. These types of liens are commonly paid out in the course of owning & refinancing a house or paying down a vehicle loan.
Settle with them directly
You may be able to ask the original creditor (or the law firm representing them, if applicable) to remove the lien. Should you make adequate arrangements with them they may do so; for example, you may agree to pay them a lump sum of money equal to less than what you owe them, or you may mutually agree to a new payment plan that accelerates their payment.
In our experience, this is quite rare. This is because creditors often believe that they are fully protected when they have a registered judgment lien against a property. It is common for them to stress to a property owner that the debt must be paid in full.
File a consumer proposal or bankruptcy
Most judgment creditors are treated as unsecured creditors when you file a consumer proposal or a bankruptcy via a Licensed Insolvency Trustee. Because of this, their debt will be compromised/discharged by the completion of a bankruptcy or consumer proposal. Find out more about debts that are released by consumer proposals and bankruptcies.
This is extremely beneficial in the event that a creditor is using their judgment to obtain a lien against a bank account or to garnish wages. A consumer proposal or bankruptcy stops both of these acts from occurring.
The exception to this, of course, is CRA’s real property liens.
If You Have A Judgment – Seek Help
The reality of the situation is that liens, judgments, CRA liens, and court proceedings are incredibly complex. If you are not quite sure how to navigate your situation you should contact a Licensed Insolvency Trustee for advice on your situation. Trustees are the only licensed and regulated debt professionals in Canada and can help you deal with your judgments and stop collection calls.
These are heavy issues to consider and there’s a reason why professional standards are required to advise people in such a vulnerable and stressful position.
Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;
- You won’t be stuck in an assembly line process.
- You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
- We will review your debt solution options, including whether filing a consumer proposal or personal bankruptcy is worth it in your situation.
- We help Canadians with overwhelming debt get fresh financial starts.
Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free, no-obligation consultation.
We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.
This article was written by Angela Rodgers, CIRP, LIT. She is a Licensed Insolvency Trustee and the President of Powell Associates Ltd. She has worked in the insolvency industry for over 20 years. No matter if you are looking at filing bankruptcy, a consumer proposal, or simply looking for debt management advice, Angela can help.