The Difference Between a Lien and a Debt

There is a lot of confusion about the difference between a lien and a debt. A debt is when a person owes money to another person or entity. A lien is what attaches the debt to property. When a debt is attached to property by a lien, the debt is said to be secured by the property. If the debtor fails to make payments to the lender, the lender can foreclose or repossess the property and sell it. The sale allows the lender to recover some of the money owed to them. If the entire debt isn’t satisfied by the sale of the property then the lender can seek to recover the deficiency from the debtor.

The distinction between a lien and a debt is important in Chapter 7 bankruptcy. When a bankruptcy debtor surrenders secured property in a Chapter 7 case, they discharge the mortgage debt, but the lien is still attached to the property. The property continues to belong to the debtor until the lender forecloses or repossesses the property. Sometimes lenders are slow to act on their right to foreclose the property. Until the lender takes possession of the property the debtor can continue to live in the house or drive the car. I have seen cases where the lender delayed for over a year after the bankruptcy case closed before foreclosing on a house. In some situations the debtor may wish to speed up the transfer of title to the lender. Debtors who wish to hand over their secured property should consider a deed in lieu of foreclosure, which allows the debtor to sign over the property without making the mortgage lender go through a formal foreclosure process.