Bankruptcy / divorce / lein on home

[newstart18]

What is the name of your state? Ohio. My ex-wife and I divorced last year, it was finalized in April '03. She filed for individual bankruptcy in June '03. In our divorce agreement, I kept our house. She filed Chapter 7, mainly because a collection agency was garnishing her wages from a judgement they got it 2002. When they got the judgement, they also had a lien put on our home, for $6K. The filing of the BK stopped the garnishment, the judgement was voided, and she got her discharge papers a few months ago. Her car and a couple of other things were taken by the BK trustee and sold at auction, altogether for $6K. When notice (whatever it is called) was sent out to her creditors regarding the BK, only one came forward, and was paid $2K. I'm sure this is because all of her other debt was very old and had been charged off by the original creditors. My assumption (apparently wrong, according to the title company I am dealing with) was that the remaining $4K would go to the collection agency that has the judgement and the lien, and the lien would be "paid down" to $2K. Instead, I am told, the $4K will go to my ex, and I am left to deal with the $6K lien on my home. Is this right? The property was both of ours when we divorced, she did not quitclaim it to me until after the divorce was finalized, actually at about the same time that she filed BK. Since this one collection agency is the only creditor that has not been paid, and the judgement was actually against a debt that was in her name only, shouldn't the $4K that is left over be paid to this collection agency, not her?

[Ladynred]

Good question. Trustees take money to pay creditors so I'm surprised that she gets any of it UNLESS it was her for her exemption.

Has the judgment been vacated at the local court level ? It may be possible to get that lien removed once the judgment is vacated. See a lawyer.

[newstart18]

*Good question. Trustees take money to pay creditors so I'm surprised that she gets any of it UNLESS it was her for her exemption.*

I was told that she would get the money because there are/were no creditors TO pay. None showed up for her meeting, and only one responded to whatever it is that is sent out notifying creditors that there is money to be had. That one creditor was paid their $2K, and she gets the $4K that remains. The whole BK revolved around the one collection agency that had the garnishment, the judgement, and the lein. She did not include the house in the BK, thinking that she was no longer on the title (when in fact she was). It was really a foolish BK, in my opinion. She did it due to the garnishment from the collection agency that had the judgement. All of her other debt, while substantial, was VERY old credit card debt. Again, no one came forward. I really thought that the remaining $4K would go toward paying the lein, since the judgement was against her. I'm wondering if she had included her 1/2 interest in the house in the BK if the trustee would have looked at things differently. I just don't see why only unsecured creditors get paid, not secured creditors as well, if there is money there to be had.

*Has the judgment been vacated at the local court level ? It may be possible to get that lien removed once the judgment is vacated. See a lawyer.*

Yes, it has been vacated. I was told, though not by a lawyer, that the lein won't be removed by the BK and the judgement being vacated because the lein turned the unsecured debt into secured debt.

[Ladynred]

When the Trustee sent out the notices to creditors that there WAS money to distribute, the creditors had the obligation to file a Proof of Claim to GET that money. Since only 1 did, they got paid, the rest didn't.

Secured debts are not discharged in BK, unless you give up the property that secures the debt. So, as long as you intend to keep the property, then the secured debts MUST be paid anyway. The distribution of available funds goes to the UNsecured creditors because they would otherwise get NOTHING.

You still should consult with a lawyer. In some states is IS possible to have a judicial lien avoided in bankruptcy.

Were you included in her BK as a creditor ?

[newstart18]

*In some states is IS possible to have a judicial lien avoided in bankruptcy.

Were you included in her BK as a creditor ?*

Do you know which states this would apply to? I was not included in the BK in any way.

[Ladynred]

No, I don't know. You'd have to go thru your state statutes. Asking a BK lawyer would be quicker

Ok, you weren't included - BIG mistake on her part. That leaves you a loophole. Since you weren't included as a creditor, that means you CAN sue her. If you pay the lien off yourself, you can then take her to court to recover the money that YOU paid out. She can't be forced to pay the creditor that placed the lien, they were included in her BK, but she will have to pay YOU personally.

[newstart18]

Thanks for the advice on dealing with her BK, and my not being included. Now, the next question - the lein. I guess I will try to settle with the collection agency that has it, but not for anywhere near the full amount. My youngest child is only 9, so the soonest I will even consider selling will be in about 13 years or so. I know they will not try to forclose on the house, so I'd think they would be willing to settle rather than wait 2 decades to get any money. I'm really not willing to pay more than about 1/2 to settle this thing. This collection agency got the judgement on 2 old debts of hers that I'm sure they bought for pennies on the dollar, so their investment can't be much. Any guess as to what this collection agency might be willing to settle for, percentage wise?

[Ladynred]

Well, I'd start by offering 25-30% and they'd STILL make a whopping profit. Compared to waiting almost 20 years for you to sell the house, they just might take it.

Were those debts beyond SOL when she was sued ? OH SOL is only 4 years for credit cards.

[newstart18]

There were 2 of them, 1 was absolutely beyond 4 years old (and it's the bigger of the 2) - I have an old credit report of hers from 2000 and it's not even on her credit report THEN, the collection agency got the judgement in 2002. The other one was a 1998 charge off, so it was right at about 4 years old. My daughter, who was 18 at the time, signed when we were served notice of the court action by the collection agency. She probably either gave the notice to my ex (not my ex at the time, of course), who in turn ignored it, or she ignored it herself. So, the judgement is valid despite the fact that it wasn't obtained by the original creditor, and the debts were ancient. (Half of the $6K is interest that they added on to the accounts in their complaint to the court). I went and copied the file on the case this past week, in their complaint to the court in 2002 the collection agency acknowledges that "the original application and agreement for this account has been either lost or destroyed". They state this for both of the accounts they got the judgement on. So, they didn't even have any paperwork to back up their claim. What I'm wondering about, I guess, is what discretion the judge has if I try to go to court over this. The collection agency took 2 old debts that they probably paid pennies on the dollar for, added a TON of interest to the amount of the charge offs, and got a judgement because no one was there to fight them. I realize that a judgement is a judgement, but I have to ask again, does the court have the latitude to even consider voiding or reducing the amount of the judgement?

[AttorneyOney]

I think that the advice you've gotten about lien avoidance is a bit of a red herring. It is possible for a debtor to avoid a judicial lien that impairs an exemption under section 522(f). Your wife had no interest in the house according to your property settlement, and hence no exemption to worry about being impaired or not. It doesn't matter if she technically still had legal title when she filed -- she had not equitable interest in the property by then.

All hope may not be lost, though. If you and your wife owned the house as tenants by the entirety, then (depending on what Ohio law has to say about the incidents of that kind of ownership), it's possible that a sole creditor of your wife could not validly obtain a lien on the property. I only know about Massachusetts law, which modernized TbyE in 1981 to give both spouses equal rights to the property, so that kind of argument wouldn't work here.

Another approach might be along these lines. After you pay off the debt (and beware that your house might be subject to seizure on execution unless you have a homestead that Ohio law recognizes), you will be subrogated to the creditor's rights. If the collection agency didn't have notice of the bankruptcy, section 523(a)(3)(A) would except its claim from the discharge. You could therefore seek recompense for the whole amount, not just the $4K you mentioned, from your ex despite her discharge. Get a lawyer to help you, though, because a mistake could subject you to damages for violation of the discharge injunction.

By the way, the mere fact that a debt isn't listed in the petition is not enough to except it from the discharge. It must also be true that the creditor didn't get notice of the case in time to take action. The way you should have been listed was as a codebtor, but it doesn't really matter whether you were or not in a ch. 7 case.

If you knew about your ex's bankruptcy, it's now too late to file a dischargeability complaint under section 523(a)(15), which relates to property settlements. If you didn't know, it's once again time to find an Ohio bankruptcy attorney to help you after you pay off the debt.

The right way to prevent this kind of problem is for a codebtor like yourself to file a proof of claim under section 501(b) if the creditor doesn't. It's pretty hard for someone who doesn't know a bit about bankruptcy to know they should do this, though.

[newstart18]

Thanks everyone for the help here. I did in fact now about her filing the BK, I just did not know about the lein until very recently. I think my pursuing anything against my ex would prove pointless, she just went BK, owns almost nothing, and does not earn that much money. I'm more interested in what (if any) options I have with the collection agency. I'm almost positive that the collection agency that had the judgement and lein actually WAS sent notice of her BK and DID NOT file a proof of claim. Shouldn't they have done this? Since they did not file, and the judgement was discharged in the BK, didn't they give up their rights at that point? I was not part of either of the credit card accounts that the collection agency got the judgement on, they actually pre-date my marriage in 1989, they are that old. Does the fact the collection agency didn't file proof of claim have any bearing here? Or the fact that the accounts were in my ex's name only and pre-date my marriage? Or the fact that she signed off dower rights to the house in 2000 (2 years before the judgement) because her credit was so bad? Or the fact that the collection agency admits to the court in their 2002 suit that they have no paperwork to back up their claims? Does any of this matter?

[AttorneyOney]

All of those facts mean that you're not personally liable for your ex's debts. The problem is the lien, which probably still exists.

But do not take the word of anyone you correspond with on the Internet -- consult an experience local bankruptcy attorney first.

[Ladynred]

I just wanted to take a moment to say "WELCOME to the board" to AttorneyOney. Its nice to have an experienced BK practitioner here, your input is invaluable.

Nice to have you here !

[AttorneyOney]

Thanks, Ladynred. It looks like you know your way around the Code, too. And have a wealth of experience in its practical application.

[Ladynred]

Thank you Coming from you I take that as a great compliment. There's still much for me to learn, but I think I've got the bulk of it down fairly well and I just love digging in to research questions and problems.