Question

In: Accounting

Discuss the potential implications and purpose as it relates to Liens.

Discuss the potential implications and purpose as it relates to Liens.

Solutions

Expert Solution

Lien is a claim which one person has upon the property of another as a security for some debt or charge.

Possible implications of lien-

1. If there is lien on property, the owner of the property is restricted to sell the property until the lien is removed.

2. Due to Lien, the person finds difficulty in obtaining further loan, as the credit report or ratings get affected very badly.

3. If the Lien is not settled, then the creditor can seize the property of the debtor.

4. Lien is created when debt is not fulfilled and legal action is taken. This certainly damages the reputation of a person.

5. Lien affects the business or profession of a debtor indirectly. Due to less credibility, many business deals are lost.

Purpose of lien -

The most important purpose of lien is to provide security to a creditor in the event of non payment of debt by the debtor. Lien can be statutory or due to contract. Both provide a legal right to creditor to exercise a right on the property.

Lien also fulfills the purpose of tax authorities to recover tax or penalties in the event of non payment of property taxes.


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