Did you know that 77 percent of American households have some kind of debt? Therefore, if you are struggling with this kind of problem, know that you are not alone. That said, the consequences for indebted individuals are different for everyone.
For that reason, it would help to understand the lien meaning in banking because, if your debts get out of control, your bank account may be subjected to liens.
What Is a Lien on a Bank Account?
When a lender gives you are loan to purchase a valuable item or asset, they may be granted a legal right to claim that asset if you fail to pay what you owe. And when the lender claims that right, they can seize your property, sell it and get their money back. That right is known as a lien.
Therefore, the lien meaning in banking refers to a lender’s right to claim any assets you own until they receive the debt payments due to them. When a lien is imposed on you, your ability to claim the funds on your bank account will be limited. Also, if the claimant proves you owe them, the monies or property you have may be turned over to them whether you like it or not.
So, pay close attention to any contracts you sign. When you sign a loan agreement to finance assets like a house or a vehicle, the contracts usually grant the bank the ability to impose a lien on your assets if you default.
However, you don’t have to grant a lender lien rights. Sometimes, the law will do so without your input. For example, if you owe the IRS money, it can impose a tax lien on the bank accounts you own.
In addition, the IRS can impose a federal tax lien on other assets you own, including real estate, investments and personal property, even if you have not defaulted on debt repayments on those things. And then, it notifies other creditors that the government has a claim on your property.
How Long Does a Lien Stay on Your Bank Account?
The duration of a lien on your bank account depends on various things, including the creditor, your actions afterward and the state you are in and its laws.
1. Federal Tax Liens
A federal tax lien will likely stay on your bank account for as long as it takes you to pay off what you owe the IRS. Once you complete making payments, the lien will be released within 30 days.
However, you can apply for a discharge of property to remove a lien on a specific property. If you meet the eligibility criteria, it may be granted to you, thus allowing you to obtain funds from some of your bank accounts or free up your property.
2. State Statute Of Limitations and Laws
Each state has its own way of doing things concerning debt collections. As a result, different rules apply on lien matters.
For example, in New York, the statute of limitation is six years for enforcing most types of contracts. But the statute of limitations for real property and mortgages is 10 years.
If the period elapses, you may experience relief from the possible liens put on your bank account, which means you can legally fight them and have the courts remove them. However, some states may give lenders the right to renew their liens.
3. Vacation of Judgments
Some liens may be imposed after a court judgment. In such cases, the lien may stay until you get legal help and vacate that judgment.
You could vacate the judgment if you prove that the lien was undeserved, such as when your identity is stolen, or the creditor used the wrong methods when imposing it. Also, if you pay off what you owe or you declare bankruptcy, you could discharge the lien via the courts.
4. Appeals to the FDIC
If you paid off your debts and the bank in which a lien was imposed goes under without releasing it, you could appeal to the Federal Deposit Insurance Corporation (FDIC). The FDIC will then process your application and help you get free of the lien. So, in this case, the lien will stay until the lien release process is complete.
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5. Debt Resettlement
Debt resettlement can enable you to settle your debt for a lump-sum amount that is less than what you owe.
If you have a lien on your bank account, you should consider negotiating with your creditor and settling your debt. As soon as both of you have agreed on new repayment terms, the bank lien can be vacated, thus allowing you to use your assets without financial restrictions.
Having a lien on a bank account or other kinds of property is a serious issue. But it is not the end of the world. If you consider your situation carefully and follow good financial and legal advice, you could have your accounts unfrozen or the freedom to use your property as you wish once you get released from the lien.
Read More: How to Handle a Bank Levy
- FederalReserve.Org: Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances
- Corporate Finance Institute: Lien
- IRS.Gov: Understanding a Federal Tax Lien
- IRS.Gov: Instructions on how to apply for Certificate of Discharge From Federal Tax Lien
- NYSLaw: Statute of Limitations on Debt Collection In New York
- Nolo: What Is the Difference Between a Property Lien and a Judgment Lien?
- FDIC.Gov: Obtaining a Lien Release
- Incharge.Org: Debt Settlement
I hold a BS in Computer Science and have been a freelance writer since 2011. When I am not writing, I enjoy reading, watching cooking and lifestyle shows, and fantasizing about world travels.