Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Judgment Lien

What it is:

A judgment lien allows a creditor to take possession of a piece of a debtor's property if the debtor does not pay his or her debts.

How it works (Example):

Let's say John Doe owns a pit bull breeding company that borrows $1 million from Bank XYZ. Sales aren't going so well, and John falls behind in the payments to Bank XYZ. Bank XYZ obtains a judgment lien, which allows it to seize his house, car and any other assets necessary to get the $987,465 outstanding balance repaid in full if John does not start making regular payments again. If John does not comply, Bank XYZ simply repossesses and sells the assets.

Judgment liens are also common in cases where a person's insurance doesn't cover the full amount of a judgment resulting from damages in a car accident or other situation.

There are different kinds of judgments. A default judgment, for example, occurs in favor of the plaintiff when the defendant fails to appear in court to defend himself or does not respond to a summons. A deficiency judgment occurs when the sale of a seized piece of property does not generate enough cash to pay the judgment and the court has to place a lien on more property.

Why it Matters:

The laws on judgment liens vary by state and by jurisdiction. However, the intent of most judgment liens is to compel the borrower to repay the creditor.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...