Lien, general

A general lien is a legal right that allows a creditor to retain possession of a debtor’s property or assets until all debts owed by the debtor to the creditor are paid.
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Updated: Jun 21, 2024

3 key takeaways

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  • A general lien allows a creditor to retain possession of a debtor’s property until all debts owed to the creditor are paid.
  • This type of lien applies to all debts between the creditor and debtor, not just a specific obligation.
  • General liens are commonly used by professionals such as bankers, attorneys, and warehouse operators to secure payment for services provided.

What is a general lien?

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A general lien gives the creditor the right to retain possession of the debtor’s property or assets as security for the payment of all debts owed by the debtor to the creditor. This type of lien is not limited to a specific debt or obligation but encompasses all outstanding debts between the parties. The creditor can hold onto the property until the debtor settles all accounts.

Example

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A common example of a general lien is a banker’s lien. If a customer has multiple accounts and loans with a bank, the bank may have a general lien on all of the customer’s accounts. The bank can retain funds from these accounts to cover any unpaid loans or obligations.

Key features of a general lien

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Retention of possession

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The creditor has the right to retain possession of the debtor’s property or assets until all debts are paid. This means the creditor can withhold the property as leverage to ensure the debtor fulfills their financial obligations.

Applicability to all debts

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A general lien applies to all debts and obligations owed by the debtor to the creditor, not just a specific transaction or agreement. This broad scope provides greater security for the creditor.

Professional use

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General liens are often used by professionals who provide ongoing services and extend credit to their clients. Examples include bankers, attorneys, warehouse operators, and certain tradespeople.

Advantages and disadvantages of general liens

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Advantages

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  • Comprehensive security: A general lien provides security for all debts owed by the debtor, giving the creditor leverage to ensure full payment.
  • Encourages payment: Knowing that the creditor can retain their property, debtors may be more motivated to settle outstanding debts promptly.
  • Reduces risk: By securing all debts with a general lien, creditors reduce the risk of non-payment and financial loss.

Disadvantages

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  • Potential disputes: The broad scope of a general lien can lead to disputes between creditors and debtors over which debts are covered and the value of the retained property.
  • Limited to possessory liens: A general lien is typically possessory, meaning the creditor must physically hold the debtor’s property. If the property is not in the creditor’s possession, the lien may not be enforceable.
  • Impact on debtor’s business: Retaining essential property or assets can disrupt the debtor’s business operations, potentially leading to further financial difficulties.

Types of general liens

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Banker’s lien

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A banker’s lien allows a bank to retain possession of a customer’s funds or securities until all outstanding debts to the bank are paid. This type of lien provides banks with security for loans and other credit extended to customers.

Attorney’s lien

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An attorney’s lien allows a lawyer to retain a client’s documents, funds, or other property until the client pays all fees and expenses owed for legal services. This lien ensures that attorneys receive compensation for their work.

Warehouse lien

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A warehouse operator may have a general lien on goods stored in their facility for unpaid storage fees and other charges. The warehouse can retain possession of the goods until all outstanding payments are made.

Mechanic’s lien (general)

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In some jurisdictions, tradespeople such as mechanics or builders may have a general lien on a customer’s property for unpaid work and materials. This lien ensures they receive payment for services rendered and materials supplied.

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Creation of a general lien

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The creation of a general lien often arises from the terms of a contract or through common law principles. It is essential to clearly define the scope and terms of the lien in any contractual agreement to avoid disputes.

Enforcement

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To enforce a general lien, the creditor must typically retain possession of the debtor’s property. If the debtor fails to pay the debts, the creditor may seek legal remedies to sell the property and recover the owed amounts.

Limitations and regulations

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General liens are subject to various legal limitations and regulations, depending on the jurisdiction. These may include requirements for notice, documentation, and the rights of third parties who may have an interest in the property.

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  • Specific lien: Understand the differences between specific and general liens, including their scope and application.
  • Possessory lien: Learn about liens that require the creditor to have physical possession of the debtor’s property to enforce the lien.
  • Secured transactions: Explore the broader context of secured transactions and the legal mechanisms used to secure payment for debts.

General liens provide comprehensive security for creditors by allowing them to retain possession of a debtor’s property until all debts are settled. While they offer significant advantages, it is essential to navigate the legal complexities and potential disputes associated with this type of lien.



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Arti
AI Financial Assistant
Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.