What Is the Difference Between a Levy and a Lien?

When civil litigation ends with a plaintiff being awarded a certain amount of money, a court judgment is entered against the defendant. The judgment establishes a legal debt along with the debtor’s responsibility to pay. What if the debtor doesn’t pay? The creditor can initiate a number of different enforcement procedures, including levies and liens.

Levies and liens are often used as a last resort. According to Judgment Collectors, a Salt Lake City firm that specializes in collecting outstanding judgments, creditors and their collection agencies prefer less aggressive tactics. They like to give debtors every opportunity to willingly pay what they owe. Should that approach failed, the levy or lien can be quite effective.

The Levy: Aggressive Collection

A Levy is a court order directing the local sheriff to seize assets on behalf of the creditor. Those assets are sold at public auction for whatever the sheriff can get for them. Auction proceeds, less the cost of conducting the auction, go to the creditor.

The fact that creditors end up paying the costs associated with levies can make them not worthwhile. Remember that auctions do not come with price guarantees. They often leave creditors with a lot less money than the original judgment. On the other hand, even a little is better than nothing at all.

Here are some of the assets that can be seized through a levy:

  • Vehicles (cars, motorcycles, RVs, etc.)
  • Real estate (some states ban seizure of primary residences)
  • Investment assets (stocks, retirement accounts, etc.)
  • Personal possessions (jewelry, collector’s items, etc.).

The Lien: Passive Collection

A more passive way to leverage assets to pay an outstanding judgment is to file a lien. Also known as a judgment lien, this legal instrument is almost always filed in relation to real estate. A lien is filed in the county in which the property in question is located.

In most states, separate liens do not have to be attached to multiple properties. A single judgment lien covers all of the properties the debtor owns in that county.

A lien differs from a levy in the sense that it doesn’t result in assets being seized and sold. Rather, it prevents a debtor from selling a piece of property until the lien has been satisfied. A debtors still wanting to sell a property can do so with the understanding that sale proceeds will go to paying the debt first. The debtor only gets what’s left over.

Going the lien route is considered passive because it results in the creditor not actively seeking payment. The creditor is content to wait on the debtor, even if it takes several years. Given that judgments are only enforceable in most states for 7 to 10 years, a creditor might have to renew a judgment several times before the attached property is sold.

Time Is a Factor

Assuming creditors are forced to look at either a levy or lien because all other collection methods have failed, time will be a consideration. Is the creditor willing to wait for years until the debtor’s property is sold? If not, is the creditor willing to take less by going the levy route?

Levies tend to result in more immediate payments. But the payments can be substantially less. On the other hand, going the lien route could mean getting enough money to satisfy the debt in full. The trade-off is waiting a long time to get paid.

Levies and liens are two ways to collect on outstanding judgments. A better way is for debtors to just pay what they owe voluntarily.