In New Jersey Chapter 7 bankruptcy cases, a common point of confusion involves the treatment of judgment liens when the debtor owns no real property at the time of filing. Many debtors assume that a bankruptcy discharge automatically eliminates recorded judgments. It does not.
In New Jersey, a Chapter 7 discharge eliminates the debtor’s personal liability for a judgment debt, but it does not automatically remove a recorded judgment lien. Without further action, the judgment lien can survive the bankruptcy and cloud the record of title, delaying future closings on real property transactions.
This issue arises frequently in consumer Chapter 7 cases and requires deliberate post-discharge planning.
Effect of a Chapter 7 Discharge on Judgment Liens
A recorded judgment in New Jersey creates a lien against real property interests. While a Chapter 7 discharge permanently enjoins collection of the debt as a personal obligation, it does not invalidate the lien itself.
As a result:
- If the debtor owned real property when the judgment was entered, the lien survives discharge unless avoided or canceled.
- If the debtor owned no real property at filing, the judgment lien may still attach to property acquired later, creating future title problems.
Absent affirmative relief, the lien remains enforceable in rem, despite the discharge.
State-Court Relief Under N.J. Stat. § 2A:16-49.1
New Jersey provides a statutory mechanism to address this problem.
Post-Discharge Cancellation of Judgment Liens
Under N.J. Stat. § 2A:16-49.1, a Chapter 7 debtor may apply to the Superior Court to cancel and discharge a judgment lien after receiving a bankruptcy discharge.
Key practice points:
- The debtor must file a motion in state court where the judgment was docketed.
- 1 year must have elapsed since debtor received their discharge
- The judgment creditor must be served with notice of the application.
- Upon entry of the order, the judgment lien is canceled and no longer clouds title.
The statute functions as an ancillary remedy designed to harmonize New Jersey judgment enforcement law with the effect of a federal bankruptcy discharge.
New Jersey courts have recognized the purpose of this statute as preventing discharged debts from continuing to burden a debtor’s property rights.
See Chemical Bank v. James, 354 N.J. Super. 1.
For many Chapter 7 debtors who did not own real property at filing, this state-court remedy is often the most direct and reliable method to clear a judgment lien.
Bankruptcy-Court Relief Under 11 U.S.C. § 522(f)
In appropriate cases, lien relief may also be pursued in the bankruptcy court.
Judicial Lien Avoidance
Under 11 U.S.C. § 522(f), a debtor may avoid a judicial lien to the extent it impairs an exemption to which the debtor is entitled. The debtor must file a motion within the bankruptcy case, and objections are governed by Bankruptcy Rule 4003.
The burden rests on the objecting creditor to challenge the exemption or the lien avoidance.
See In re Menell, 160 B.R. 524.
The New Jersey Practice Issue: No Property at Filing
In Chapter 7 cases where the debtor owned no real property at filing, courts within the Third Circuit have reached differing conclusions regarding the applicability of § 522(f).
Limiting Interpretation
Some courts have held that § 522(f) cannot be used where the debtor had no property interest at the time of filing because the judgment was not a lien on any existing property.
In In re Hamilton, the court concluded that § 522(f) was unavailable under these circumstances.
See In re Hamilton, 286 B.R. 291.Case from 2002.
Broader Interpretation
Other courts have focused on the statutory language and concluded that § 522(f) does not expressly require the debtor to own property at the time of filing or at the time the motion is brought.
In Unifund C.C.R. Partners v. Sheckard, the court held that a debtor may still invoke § 522(f) where a judicial lien impairs an exemption, even if the property interest arises later.
See In re Sheckard, 386 B.R. 118; In re Sheckard, 394 B.R. 56. Case from 2008.
Because these interpretations coexist, reliance on § 522(f) alone in New Jersey Chapter 7 cases can be uncertain when no property existed at filing.
Practical Guidance for New Jersey Chapter 7 Cases
From a New Jersey practice standpoint:
- A Chapter 7 discharge alone does not clear judgment liens.
- Where real property exists at filing, § 522(f) is often the preferred remedy.
- Where no real property exists at filing, N.J. Stat. § 2A:16-49.1 is frequently the most effective post-discharge solution.
- Failure to pursue either remedy leaves the judgment lien intact and capable of attaching to future property.
Judgment lien issues should be identified early in Chapter 7 cases and addressed either during the bankruptcy or promptly after discharge to avoid future title and refinancing complications.
Scura, Wigfield, Heyer, Stevens & Cammarota’s New Jersey Attorneys provide experienced legal representation with New Jersey Bankruptcy cases and avoiding a judicial lien. If you are considering filing for bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy or avoiding a judicial lien, please call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free legal consultation.
