Bankruptcy invalidating liens
(Keep in mind that some states prohibit deficiency balances on certain types of transactions.Also, Chapter 7 bankruptcy will wipe out a deficiency balance—more below.) Here are some other important terms you should know: Although it’s common to agree to give a creditor a lien (for instance, as part of your mortgage or car note transaction), some liens are created without your consent by operation of law.Because collateral doesn’t secure these types of debts, the creditor can’t force payment without doing more—until the creditor sues and wins in court, that is.If the creditor believes the amount owed is large enough to justify the cost of litigation, the creditor will file a civil lawsuit.Bankruptcy works well to wipe out many types of debt.
To perfect security interests in cars or business assets, the holder of the security interest must typically record it with whatever statewide or local agency handles recordings under the Uniform Commercial Code (called “UCC recordings”)—usually with the secretary of state.
Also, in some cases, it might prevent a tax obligation from being assessed because forgiven debt gets taxed as income.
For instance, if you let your house go through foreclosure and the lender forgives the deficiency balance, you could receive a hefty tax bill at the end of the year.
The contract also states that the creditor (the store) has a security interest in the couch and can repossess it if any payment is more than 15 days late.
In this type of secured debt, Mary’s obligation to pay the debt is her personal liability, and the store’s right to repossess the couch is the lien.