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What is a Judgment Lien?
What is a Judgment lien and how it effects you as debtor?
A judgment lien is a type of legal claim placed on a person's property by a creditor to secure the payment of a debt owed by the property owner. When a creditor obtains a court judgment against a debtor for a sum of money, the creditor can then file a lien with the appropriate government agency, such as the county recorder's office, to attach the lien to the debtor's property.
The judgment lien gives the creditor a legal right to seize and sell the debtor's property to satisfy the debt owed. The lien can apply to any real property owned by the debtor, such as a house or land, as well as personal property, such as a car or bank account. The lien remains in effect until the debt is paid off or the property is sold, and it can impact the debtor's credit score and ability to borrow money.
It is possible to sell a property with a judgment lien, but the lien will need to be satisfied before the sale can be completed. When a property has a judgment lien attached to it, the lien holder has a legal claim to the proceeds from the sale of the property up to the amount of the debt owed. Therefore, before the sale can be completed, the lien holder must either release the lien or agree to accept a portion of the proceeds as payment towards the debt owed.
If the property is sold for less than the amount of the debt owed, the lien holder may still pursue the debtor for the remaining balance. If the property is sold for more than the amount of the debt owed, the lien holder may be entitled to receive the excess proceeds, depending on the laws of the state where the property is located.
It's important to note that the presence of a judgment lien can make it more difficult to sell a property and may impact the value of the property. It's always a good idea to consult with an experienced real estate agent and an attorney to determine the best course of action for selling a property with a judgment lien.
It is possible to void a judgment in a Chapter 7 bankruptcy under certain circumstances. If a judgment has been entered against you, but you have not yet paid the debt or the creditor has not yet placed a lien on your property, you may be able to discharge the debt in your Chapter 7 bankruptcy. This means that the debt is erased, and the creditor cannot take any further legal action to collect it.
However, if the creditor has already placed a lien on your property, the lien will not be automatically voided by your bankruptcy filing. In some cases, you may be able to use a legal procedure called "lien avoidance" to remove the lien and protect your property from seizure. This typically requires the help of an experienced bankruptcy attorney. You can use the following website to check to see if you have a judgment issued against you.
How to avoid a judgment lien through a chapter 7 bankruptcy
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 to void a judgment in accordance with New Jersey State Law
If you filed for bankruptcy within the state of New Jersey, and the 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 a judgment lien was subject to be discharged under the New Jersey statute. The Court found that: the trial court must first determine whether 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.
It's important to note that not all types of judgments are dischargeable in bankruptcy, such as judgments related to fraud, willful and malicious injury, or certain types of taxes. It's always a good idea to consult with a bankruptcy attorney to determine your options and the best course of action for your specific situation.
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