After a civil court case is finally adjudged—with either a verdict, settlement or judgment by default between the parties—the court will enter a judgment against one of the parties. Typically, the judgment orders one of the parties to pay money to the injured/damaged party as a form of relief. Once the judgment is docketed, the judgment becomes a lien attached to all of the debtor’s real property that is located within the State of New Jersey.
The judgment lien acts as a form of assurance for the creditor that it may collect what is owed on the judgment. In addition to a judgment lien attaching to a debtor’s real property, a creditor has several other options to collect on the judgment; including wage execution/garnishment, imposing a bank levy, and executing the judgment lien on the debtor’s other assets such as office equipment or vehicles.
In New Jersey, judgment liens will typically remain attached to the debtor’s property for 20 years or until the judgment is satisfied. A judgment creditor can also make application to renew the judgment lien after 20 years. If the judgment has been paid or satisfied by the debtor, then either the debtor or the creditor can file with the court wherein the judgment was entered showing satisfaction of the judgment to have the judgment and lien cancelled. The state of New Jersey provides a free resource to search whether you have an outstanding judgment.
How Federal Bankruptcy Law Can Help a Debtor Get Relief from a Judgment Lien
Federal bankruptcy law provides relief for a debtor of personal liability for judgments but if real property is owned by the judgment debtor, the judgment must be voided or the lien will follow the real estate. The judgment will continue to remain attached to the real property even if it is subsequently sold or transferred to a third party.
However, if the judgment debtor has filed for bankruptcy, there are procedures in place to discharge or avoid the judgment lien. A bankruptcy discharge will prevent the judgment creditor from pursuing you for a monetary recovery, since it eliminates your monetary or personal obligation to that creditor. However, a bankruptcy discharge does not automatically void a judgment lien on your real property.
Under federal bankruptcy law, a debtor “may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is (a) a judicial lien . . . .” 11 U.S.C. § 522(f)(1)(a). The statute is intended to function as to protect a debtor’s exempt property and to “thwart creditors, who, sensing an impending bankruptcy, rush to court to obtain a judgment to defeat the debtor’s exemptions.” Farrey v. Sanderfoot, 500 U.S. 291, 297 (1991). Under 11 U.S.C. § 522(f)(1), three conditions must be satisfied for a debtor to avoid a lien:
(a) the lien must be a judicial lien;
(b) the lien must be fixed against an interest of the debtor in property; and
(c) the lien must impair an exemption to which the debtor would otherwise be entitled. In re Jordana, 232 B.R. 469, 473 (10th Cir. BAP 1999).
Provided a debtor meets the above criteria, the liens on the property may be avoided in the bankruptcy case, regardless of whether there is some equity in the property to support the claimed property exemption under 11 U.S.C. §522(f)(1).
How New Jersey State Law Can Help Provide Relief from a Judgment Lien
If you filed for bankruptcy within the state of New Jersey, you may be entitled to an additional form of relief from a judgment lien. If the bankruptcy case is over and a year has passed since the bankruptcy discharge, you can use a New Jersey statute to discharge a judicial lien on real property.
N.J.S.A. § 2A:16-49.1 provides:
At any time after 1 year has elapsed, since a bankrupt was discharged from his debts, pursuant to the acts of Congress relating to bankruptcy, he may apply, upon proof of his discharge, to the court in which a judgment was rendered against him, or to the court of which it has become a judgment by docketing it, or filing a transcript thereof, for an order directing the judgment to be canceled and discharged of record. If it appears upon the hearing that he has been discharged from the payment of that judgment or the debt upon which such judgment was recovered, an order shall be made directing said judgment to be canceled and discharged of record; and thereupon the clerk of said court shall cancel and discharge the same by entering on the record or in the margin of the record of judgment, that the same is canceled and discharged by order of the court, giving the date of entry of the order of discharge. Where the judgment was a lien on real property owned by the bankrupt prior to the time he was adjudged a bankrupt, and not subject to be discharged or released under the provisions of the Bankruptcy Act, the lien thereof upon said real estate shall not be affected by said order and may be enforced, but in all other respects the judgment shall be of no force or validity, nor shall the same be a lien on real property acquired by him subsequent to his discharge in bankruptcy. Notice of the application, accompanied with copies of the papers upon which it is made, must be served upon the judgment creditor, or his attorney of record in said judgment, in the manner prescribed in R.R. 4:5-1, et cetera, of The Revision of The Rules Governing the Courts of the State of New Jersey (1953); 1 provided, however, nothing herein contained shall prevent said judgment notwithstanding such discharge of record from being used as a set-off in any action in which it otherwise could be used.
In the case of Party Parrot, Inc. v. Birthdays & Holidays, Inc., 673 A.2d 293 (1996) the Court clarified when the state court procedure can be used if judgment still existing after bankruptcy and when it cannot. The issue in Party Parrot was whether or not a judgment lien was subject to be discharged under the New Jersey statute. The Court found that:
the trial court must first determine whether or not there was a levy on the real estate. If there had been a levy, the trustee lacked the power to avoid the lien, and defendant, therefore, may avoid only that part of the lien that impaired his exemption rights. If there had been no levy, and plaintiff’s lien was subject to the trustee’s avoidance power under § 544, the lien is now unenforceable.
Party Parrot, 673 A.2d at 178-79. In other words, if the judicial creditor imposed a levy on the real property, then the lien is avoidable only to the extent that it impairs one of your exemption rights; if there was no levy imposed on the real property, then the entirety of the lien can be avoided.
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, LL for a free legal consultation.
