Removing Judgment Liens Discharged in Bankruptcy

A successful bankruptcy case generally results in the entry of a discharge order by a Bankruptcy Court eliminating a debtor's personal liability on many debts.  This includes a discharge of debts held by creditors who obtained judgments in the Superior Court of New Jersey.  It is common, however, that these creditors’ judgments still appear as liens against debtors' real property in New Jersey long after a bankruptcy case has concluded. This is because Bankruptcy Court discharge orders do not, without further action, remove judgment liens from debtors' real property.  

By way of background, it is a well-settled principle of law that liens may survive a bankruptcy discharge.  A bankruptcy discharge serves merely to discharge his or her personal obligation to pay the debt which the judgment or other lien secures; it does not affect the lien itself. This is because the bankruptcy proceeding, in and or itself, does not affect the nature and quality of the title to the debtor’s real estate. So if certain liens or encumbrances are secured by a debtor's property at the time they file a bankruptcy petition, and no affirmative action is taken to remove those liens or encumbrances during the course of the bankruptcy proceeding, the liens and encumbrances will still exist at the time the case is concluded.  In short, property is not washed of liens simply by passing to the bankruptcy estate. Rather, the estate honors the principle of derivative title and takes property subject to all liens.

So while a bankruptcy discharge prevents a creditor from attempting to collect its debt against a debtor, individually, a creditor's docketed judgment lien remains secured against a debtor’s New Jersey real estate.  This is because, in New Jersey, once a creditor obtains a judgment, it may docket its judgment on the index maintained by the Clerk of the Superior Court of New Jersey in Trenton, New Jersey.  At that point, that judgment becomes a statewide lien on any real estate owned by the debtor in New Jersey. A New Jersey docketed judgment remains in the judgment index for 20 years, and can be renewed by a creditor’s timely application.

A procedure exists in bankruptcy court to remove a judgment lien against a debtor’s real estate pursuant to 11 U.S.C. 522(f). However, because New Jersey has a statute that provides for discharging or cancelling a judgment following a one (1) year period after a bankruptcy discharge is entered, in many instances it is advisable for debtors to wait a year and apply to discharge the judgment in the original New Jersey Superior Court judgment case. This can be a relatively straight-forward and inexpensive means of clearing the judgment from the index and from title to the debtor's New Jersey real property.  

The applicable statute, N.J.S.A. 2A:16-49.1, Application; hearing; order; cancellation and discharge; effect on lien; notice of application; set-off, states as follows:

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.

Accordingly, in order for an application under N.J.S.A. 2A:16-49.1 to be successful, the following conditions must generally be met:

1) one (1) year has elapsed since the discharge of the bankrupt; and
2) the debt or lien was scheduled in the bankruptcy petition; and
3) the debt is dischargeable.

Since 1993, our New Jersey bankruptcy lawyers have been assisting debtors in the removal of judgment liens from real estate that were previously discharged in bankruptcy.

If you have a pre-bankruptcy judgment lien that prevents you from refinancing or selling your real estate, or otherwise clouding your title to your real property,  contact our Firm today for a free consultation

R. 1:2-1. Proceedings in Open Court; Robes

All trials, hearings of motions and other applications, pretrial conferences, arraignments, sentencing conferences (except with members of the probation department) and appeals shall be conducted in open court unless otherwise provided by rule or statute. If a proceeding is required to be conducted in open court, no record of any portion thereof shall be sealed by order of the court except for good cause shown, as defined by R. 1:38-11(b), which shall be set forth on the record. Settlement conferences may be heard at the bench or in chambers. Every judge shall wear judicial robes during proceedings in open court.

Credits
Note: Source--R.R. 1:28-6, 3:5-1 (first clause), 4:29-5, 4:118-5, 7:7-1, 8:13-7(c); amended July 14, 1992 to be effective September 1, 1992; amended July 16, 2009 to be effective September 1, 2009.

R. 1:2-1, NJ R GEN APPLICATION R. 1:2-1
New Jersey rules are current with amendments received through August 15, 2016. New Jersey directives are current with amendments received through August 15, 2016.

R. 1:2-2. Trial Courts; Verbatim Record of Proceedings

In the trial divisions of the Superior Court and in the Tax Court, all proceedings in court shall be recorded verbatim except, unless the court otherwise orders, settlement conferences, case management conferences, calendar calls, and ex parte motions. Unless a transcript thereof is marked into evidence, a verbatim record shall also be made of the content of an audio or video tape played during the proceedings and the tape itself shall be marked into evidence as a court’s exhibit and retained by the court. Ex parte proceedings pursuant to R. 4:52 and R. 4:67 shall, however, be recorded verbatim subject to the availability of either a court reporter or a recording device. In the municipal courts, the taking of a verbatim record of the proceedings shall be governed by R. 7:8-8. Charge conferences, whether conducted in open court or in chambers, shall be recorded verbatim as required by R. 1:8-7(a).

Credits
Note: Source--R.R. 3:7-5 (first sentence), 3:7-10(d) (fifth sentence), 4:44-2 (first sentence), 4:44-5, 4:61-1(b). Amended June 20, 1979 to be effective July 1, 1979; amended December 20, 1983 to be effective December 31, 1983; amended July 26, 1984 to be effective September 10, 1984; amended January 5, 1998, to be effective February 1, 1998; amended July 10, 1998 to be effective September 1, 1998; amended July 5, 2000 to be effective September 5, 2000; amended July 12, 2002 to be effective September 3, 2002; amended July 28, 2004 to be effective September 1, 2004.

R. 1:2-2, NJ R GEN APPLICATION R. 1:2-2
New Jersey rules are current with amendments received through August 15, 2016. New Jersey directives are current with amendments received through August 15, 2016.