If a creditor decides to initiate legal action to collect an unpaid debt, a court victory gives it a number of tools to force a delinquent borrower to pay up. Creditors can file lawsuits, garnish wages and place claims on real estate owned by borrowers who fail to repay loans. But no creditor can put a lien on any U.S. Savings Bonds a borrower may own. Only the Internal Revenue Service has the authority to do that.
A savings bond is a security issued to investors by the U.S. government to finance its operations. Investors who buy savings bonds are loaning money to the federal government which it promises to repay with interest at some specific future date. The Treasury stopped issuing paper bonds to workers who buy savings bonds through company payroll deduction plans as of January 2011. Banks will no longer sell paper savings bonds as of January 2012. All savings bonds will be recorded in electronic form, just like bank accounts and investment accounts. Still, creditors have no ability to attach any liens on savings bonds.
When creditors decide to pursue a lien against a delinquent creditor, their first step in the process is to obtain a judgment. A judgment is a court decision that not only verifies that the debt is owed to the creditor, it can increase the debt by adding interest and other fees, such as court costs, attorney fees and collection costs. An unsatisfied judgment can last up to 20 years on a credit report.
When the judgment has been recorded with the clerk of court, the creditor is able to place liens on property owned by the borrower. A lien will "cloud up" the title to the borrower's home. It's an encumbrance that a lender would require the owner to pay as a condition of either refinancing the property or selling the property. Some states have strict laws that prevent creditors from placing liens on borrowers' primary residences. Residents of Florida have unlimited protection from liens on their homes regardless of the home's value. Rhode Island residents have no protection. Creditors can place liens on their homes for any amount.
A judgment also paves the way for creditors to collect unpaid debts by garnishing wages. Federal law regulates creditor garnishments, but state laws have a big influence on how far creditors can go with taking money out of a debtor's paycheck. Garnishments are governed by the law in the state where the employee works and each state has its own regulations concerning involuntary deductions from an employee's wages. For example, creditors can garnish the wages of workers in New Jersey, but an employee in Pennsylvania is protected from wage garnishment.
Tim Grant has been a journalist since 1989 and has worked for several daily newspapers, including the Charleston "Post & Courier," the "Savannah News-Press," the "Spartanburg Herald-Journal," the "St. Petersburg Times" and the "Pittsburgh Post-Gazette." He has covered a variety of subjects and beats, including crime, government, education, religion and business. He graduated from The Citadel with a Bachelor of Science in business administration.