The Short Answer
A lawsuit is a creditor's legal action against you demanding payment. If you don't respond or lose, the court issues a judgment — a legal order requiring you to pay. That judgment can then attach to your property as a lien, turning an unsecured debt into one secured by your home or other assets. Bankruptcy can help address all three, but a lien on property requires an extra step: a motion to avoid the lien must be filed with the court.
Many debtors get nervous when all these legal terms start to get thrown around. We are going to explain what each of these are so that you will have a better idea of what you may be dealing with. We will focus on the civil side of things and how they relate to bankruptcy filings.
Lawsuit:
Say you owe a credit card company $4,000 and you cannot afford to pay them anymore. After several months of not receiving any payment from you, they may choose to sue you for the amount you owe them. This is a lawsuit. They will file it with the court saying they want to take legal action against you for the money you owe them. Once you receive a lawsuit, you typically have 30 days to respond. It is usually best to respond because it will buy you some time so you can figure out what you would like to do before they get a judgment.
Judgment:
If you do not respond to that lawsuit within the certain amount of time, the court will set a date for a hearing. Usually at this hearing your creditor will ask for a judgment against you. This means you now have a court order that is requiring you to pay the money you owe to the creditor. If you fail to pay your creditor after they receive a judgment, the court could place a lien on the property.
Lien:
One of the most common things that can be called a lien is a mortgage. You took out a loan that is secured by a home. If a creditor obtains a judgment against you in court, that judgment could possibly attach to your home or other property as a lien. That debt that you owe the creditor for the judgment is now secured by your home or other property. You typically must satisfy (or pay) the lien off in full before you are able to sell or transfer the property. In North Carolina, a lien can last for 10 years and then be refilled for an additional 10-year period if it has not been executed or satisfied. This is another incentive to get you to pay that debt. Bankruptcy can help get that lien off your property, but an additional motion must be filed.
Key Takeaways
- A lawsuit is just the start — you typically have 30 days to respond, and responding buys you time to weigh your options before a judgment is entered.
- A judgment is a court order requiring you to pay, and it becomes the legal foundation for everything that comes after, including liens.
- In North Carolina, a judgment lien can attach to your real property and last for 10 years, then be renewed for another 10 years if unpaid.
- A lien converts what was once an unsecured debt — like a credit card balance — into a debt secured by your home or other property, which must typically be paid off before you can sell or transfer that property.
- Filing bankruptcy triggers the automatic stay, which halts most collection actions, but removing a judgment lien requires a separate motion to avoid the lien — it does not happen automatically.
- Unlike many states, North Carolina does not allow private creditors to garnish your wages based solely on a court judgment, but a lien on property is still a serious consequence to address.
Attorney Insight
The mistake I see most often is people assuming that filing bankruptcy automatically wipes out a judgment lien on their home — it doesn't. The bankruptcy discharge eliminates your personal obligation to pay the debt, but the lien itself can survive and stay attached to your property unless we file a separate motion to avoid it. In North Carolina, where our homestead exemption is $35,000 for an individual ($70,000 for a married couple filing jointly), whether we can avoid that lien depends on how much equity you have and whether the lien impairs your exemption. If we don't catch it and file that motion, you could walk out of bankruptcy still owing a secured debt you thought was gone.
