December 19, 2009
Great Thread on Removal of Judicial Liens
Correct me if I am wrong…. When someone files a Chapter 7 bankruptcy and there is a judicial lien on his/her home due to an unpaid credit card debt… the lien still stands after the discharge of the bankruptcy?
Sandusky, OH 44870
Correct, unless they file a Motion to Avoid Lien.
Most debtors do not understand this. I have had many cases where the judgment lien survives the bk and the debtor demands that it be released. Frankly I think there are attorneys in this district that do not explain this well to their clients and do a disservice to them by not filing a motion to avoid, which most creditors do not bother to respond to.
Brooks J. Grainger, Esq.
South Bend, IN 46660
Some attorneys only file a motion to avoid the lien if there is real property in the case, but I have always filed motions to avoid judgment liens in every 7 for one simple reason: if you don't, your client will be calling you a year or 2 later to complain when some loan officer turns him down because there is still an outstanding lien on his credit report.
I don't think a creditor can attach the old lien to new property after the discharge, but try explaining that to some mortgage hack who doesn't get it; it's better to have the Order Avoiding the Lien handy to fax or email to them.
(don't forget to file motions to avoid non-PMSI liens too. they don't just go away.)
I don't think one can or should move to avoid liens in every 7. How do you avoid a lien that does not exist? To be avoidable, the lien has to impair an exemption. If a debtor owns no real property, there is no lien and there is no impairment of exemption.
Looks like what you are really doing is getting a comfort order when there is no real property. The request to the court should make that clear; otherwise, a motion seeking 522(f) relief as against something that doesn't exist might get bounced.
I disagree, since (at least in Georgia) a judgment becomes a lien against "all real and personal property," and in every state, I'm sure the debtor's clothes and furniture are exempted, and therefore the lien impairs the exemption on personal property. Unless your client lives in a cave and is a nudist, he has exempt property. (But I say this, not knowing if some states let judicial liens attach only to real but not personal property.)
But, as I said, the practical reason was so that future issuers of credit will not get all hung up over old, unavoided liens that remain on the debtor's credit report for 7 more years. I've argued with all manner of untrained non-lawyer loan officers, one of whom tried to tell me that the debts were not discharged if the account numbers were not listed. He would not buy the strange notion that Notice is of the essence, not exact balances or account numbers (which are often redacted anyway). He turned down my client's credit application for this absurd reason.
I simply do this to prevent later, pointless quibbling with laymen who want to argue the law with me and with clients who think you let them down.
As for the other comment, perhaps it is indeed just a comfort order, but no judge in my district has ever failed to grant the motion where no creditor responded.
I like to leave no loose ends hanging in a 7 so that I don't have to continue to deal with the case for years afterward.
So no, you don't HAVE to avoid all judicial liens in a 7, but your life might be quieter if you just do it as a routine. My software just cranks them out and we file them.
What about non purchase money security interests in household goods and a car. If the creditor does not seek to lift the stay to repossess what happens after the discharge in a 7? What about in a 13 where the debt is not fully paid in the 13?
Ronald F. Suber
At least in my state, you can't avoid a title lien on a car, but you can (and should) avoid a non-PMSI lien on household goods, otherwise they're still collateral after the discharge. And if the creditor responds, we usually work out some sort of compromise if the debt is fairly fresh.
"You can (and should) avoid a non-PMSI lien on household goods . . . "
That raised a question for me.
How prevalent are nonpossessory, non-PMSI's in household goods? The FTC bans nonpossessory, non-PMSI's in most things that would be considered "household goods." The FTC's definition of household goods excludes some things. My supposition, however, would be that there is NOT a huge part of the consumer credit market taking valid nonpossessory, non-PMSI's. Is there a sense that there is rampant noncompliance with the FTC rule?
In Alabama, there are several lenders/finance companies that will take a blanket security interest not only in household goods but on cars as well, even when the car title is in the possession of the purchase money auto lender.
Ronald F. Suber
I see less of it than I used to, but American General Finance and a few others take non-possessory liens in household goods as collateral. One time I stopped by their attorney's office and saw a table covered with collectible Barbie Dolls that they'd picked up from the defaulting debtor.
One small finance company came up with the idea of purchasing the debtor's furniture and electronics and then "selling" it back to the debtor so that there's no lien to avoid, and they'd just pick up the furniture if they weren't paid.
The market has indeed changed since UCC and Bankruptcy Code battles were fought over this in the 1960's and 1970's. Non-purchase money security interests in HHG are a negligible problem these days. Credit cards have largely preempted the old consumer loan companies. I have not seen a case justifying bothering with an avoidance motion in at least 10 years, maybe 20. Even as to HHG PMSI's in bankruptcy, many consumer bankruptcy lawyers including this one have concluded that creditors very rarely consider them worth enforcing when the stay and discharge prohibit asking for money. The default strategy is give the creditor its choice of attempting to enforce the lien or walking away, with high confidence it will be the latter. They often still ask for reaffirmation agreements, and presumably some debtor lawyers recommend that, or they wouldn't keep asking.
Kenneth J. Doran
Madison, Wis. / W.D.Wis.
I agree with Ken. Even when the loan is purchase-money, the creditor cannot afford the cost of picking up, storing, and trying to re-sell used merchandise. It depends on the price and age of the goods, but in most cases the best course is to give the creditor the choice. Just tell your client to tell Sears they can come out and pick up the washing machine.
In our business we frequently encounter loans or sales all set to close, when at the last minute the formerly-bankrupt mortgagor/seller learns to his dismay that neither his bankruptcy attorney nor his closing attorney understands (as at one point in my career I didn’t understand – we all have to learn it somehow) this easy-to-remember and very important principle: Liens pass through bankruptcy unaffected. So if the debtor wants to affect the lien, the debtor has to get himself an order. I can’t tell you how many times I’ve had attorneys say to me, when I’ve recited this principle, “But the owner listed this secured creditor in his petition, and then he got his discharge.”
If even one bankruptcy lawyer on this list, as a result of reading this thread, saves his client the trouble, and himself the embarrassment and expense, of going back to court to get the avoidance order that should’ve been obtained during the bankruptcy proceeding, that is a good thing.
John D. Thomas
East Hartford, CT 06108
One can, of course, move to reopen the case to avoid the lien, but that can be expensive and time consuming, usually when time is of the essence.
David A. Tilem
Glendale, CA 91206
Indeed, and I recall being very surprised to learn that (in CT, anyway) you can go back in many years later. I figured there would be some time limitation on one’s ability to do so. In one case the court allowed the avoidance nine years after the BK case was closed.
John D. Thomas
East Hartford, CT 06108
But if the Order only avoids the lien to the extent it impairs exemptions, then how does help post bankruptcy? It would seem the lien still exists for all property acquired after the bankruptcy or even during the bankruptcy if it is not property of the estate.
Ronald F. Suber
Fairhope, Al 36533
Re pre-petition claims: The automatic stay would prohibit creation or attachment of a lien during the bankruptcy or on after-acquired property. And then the discharge would create an injunction against creation or attachment of a lien post-discharge.
In Florida, a judgment lien is not automatic; one must register the judgment centrally (Tallahassee registry) to acquire a lien on personalty, and one must record a certified copy of the judgment in the land records where land is situated to create a lien on land (the copy routinely recorded by the Clerk of Court isn't enough). There are also some attributes of the judgment itself that are prerequisites to the creation of a judgment lien. So, in Florida, the mere existence of a judgment doesn't necessarily mean that exemptions are impaired by a judgment lien.
It is a Catch-22. The judgment creditor records pre-petition. The debtor has nor real property and obtains a discharge. The debtor does not avoid the lien, because there is no lien that impairs exempt real property. The debtor later acquires real property. The lien is of record. Does the lien attach? Liens do pass through BK. But the discharge voided the judgment, and with no underlying judgment, the judgment lien no longer exists. See In re Thomas 102 BR 199 (Bk ED Cal 1989).
As I understand it, an existing judgment lien on existing property remains attached even after discharge, unless it is avoided during the chapter 7. The existing property remains encumbered by the lien unless avoided. Bankruptcy does not automatically remove security interests, that requires an order of the court.
On the other hand, new after-acquired property should not become encumbered by the old pre-bankruptcy lien, whether avoided or not, as it would violate the automatic stay to continue to attach a pre-bankruptcy lien to post-bankruptcy property as it is acquired.
My whole point all along has been that if you go to the trouble to avoid the lien, then it can no longer interfere with the debtor's attempts to get credit after the discharge. It's a lot cleaner and less confusing just to go ahead and avoid it while you can. I don't worry about whether it's necessary or even appropriate, I just know that I've done all that the debtor could expect me to do. His old judgments are now gone, and I have a court order to prove it.
My argument for avoiding the liens is not based on the legal issues, it's simply done to cut down on hassles and recriminations later.
And the reason you do it is the best reason. Helps the client and covers your butt.
Although there are plenty of title companies tha just don't understand the fact that after acquired property can not be subject to a lien created pre petition.
I think a fascinating article would be one where both a scholar and an “in the trenches” practitioner combine their efforts and publish “practical advice for the bankruptcy practitioner.” The scholar’s purpose would be to prevent due process and other public policy errors.
Ronald F. Suber
Fairhope, Al 36533
The discharge may not have "avoided the judgment," but rather created an absolute legal defense to the judgment's implied powers to effect collection.
Richard J. Cohen, Esq.
Centerville, MA 02632
The discharge voids "judgments at any time obtained," 524(a)(1).
Lawrence L. Szabo
Oakland, CA 94610
December 16, 2009
New Bankruptcy Judges in San Diego and San JoseThe 9th Circuit has appointed Margaret Mann in San Diego and Charles Novack in Oakland as Bankruptcy Judges. Ms. Mann will replace retiring Judge James Meyers and Mr. Novack will replace retiring Judge Marilyn Morgan. Each will take the bench early next yeaar.
December 15, 2009
Review of 9th Circuit Cases for 2009
Central District Consumer Bankruptcy Attorneys Association
Fourth Annual Review of 9th Circuit Published Decisions and Selected Other Cases on Bankruptcy for 2009
January 30, 2010
Hon. Erithe Smith
Bankruptcy Judge, Central District of California, Santa Ana Division
M. Jonathan Hayes
Southwestern Law School
3050 Wilshire Boulevard
Los Angeles, CA 90010
Registration: 10:00 am - 11:00 am
CDCBAA Membership Meeting: 10:00 am - 11:00 am
Program: 11:00 pm - 1:00 pm
2 Hours of MCLE Credit Provided – Limited Space
Cost: Free to CDCBAA Members
Non-Members: $210 (which includes one year membership in CDCBAA, admission to the annual Calvin Ashland Awards Dinner, and at least seven more free MCLE Programs this year)
December 14, 2009
Program on Foreclosures in California
Update on Foreclosure Law Changes Including Modifications and Attorney Representation
Speaker: Mark Blackman, Esq.
Date: Wednesday, December 16
Time: 12:00 Noon Lunch and Program
Place: SFVBA Conference Room
21250 Califa Street, Woodland Hills
Cost: $30 Members prepaid; $40 at the door
$40 Non-Members prepaid
$50 Non-Members at the door
The SFVBA is a State Bar of California approved MCLE provider. By attending this seminar, attorneys earn 1 hour MCLE.
San Fernando Valley Bar Association
21250 Califa Sreet, Suite 113 ■ Woodland Hills, California 91367
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