Lien - Tax Ninja's Word of the Week

Lien [ leen, lee-uhn ]

Noun:

Law. the legal claim of one person upon the property of another person to secure the payment of a debt or the satisfaction of an obligation.

Financial Usage:

• A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt.
• If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.
• Various types of liens can be established including by a creditor, legal judgement, or tax authority.

How a Lien Works?

Take the case of a lien on a car you buy for your business. You buy the car from a dealer, secured by a bank loan, and the bank would then put a lien on it and hold the title. The bank has a security interest in the property, so the ownership of the car stays with them, and if the borrower defaults, they can sell the car to recover the amount of the loan.

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