Judgment not satisfied in bankruptcy.

[thadamere]

Here's a timeline.
In January 2015, I was sued by a creditor for $9000 (my now-ex-wife had wracked up $60+k in mystery debt she never told me about). In June 2015, The creditor got a default judgement against me/us. There was no lien. Just a judgment.
In August 2015, I filed for bankruptcy and this debt was included in the bankruptcy.
In December 2015, My bankruptcy was granted.
In January 2016, I was notified by the bankruptcy trustee that any income tax refund I would receive for Tax year 2015 would be kept by the Bankruptcy Trustee. I complied with this.
In September 2016, I was notified that each of the creditors got a portion of that available money, including the original $9000 creditor, each creditor got 9% of the debt owed. So they got $800+.
Fast forward to 2019, the judgement for $9000 is still out there, not having been satisfied by the bankruptcy. The original Debt of $9000 is marked as having been satisfied by the bankruptcy and the trustee payment, but the judgement has not.
What do I need to do on this? Is this something I can do myself? I called up the creditor and they're saying the same thing, "the original debt was satisfied by the Bankruptcy and the trustee payout. But the judgement was not." And then there was crickets.

 

[PayrollHRGuy]

Fast forward to 2019, the judgement for $9000 is still out there,

Out where? IS someone actively trying to collect it from you?

 

[thadamere]

Yes, I am trying to sell a house and the Title Agency is saying, "there's an active judgement against you." So I sent them copies of the bankruptcy paperwork listing the creditor and their status. I called the creditor and they're saying, "the debt was satisfied in bankruptcy, but the judgment was not." So, I asked "what do I need to do?" And the guy on the line didn't have an answer for me.

 

[thadamere]

I'm in AZ.

 

[Taxing Matters]

What do I need to do on this? Is this something I can do myself? I called up the creditor and they're saying the same thing, "the original debt was satisfied by the Bankruptcy and the trustee payout. But the judgement was not." And then there was crickets.

Understand that what happened in the bankruptcy was that your creditor was paid a small part of the total debt and the remaining balance of the debt owed was discharged, not satisfied. The discharge clears your personal obligation on the debt. While the judgment remains, what effect that has depends on the laws of your state. If the judgment has the effect of creating a lien on the property, then you have a problem.

 

[despritfreya]

You are in Arizona. The judgment lien does not, I repeat, DOES NOT, attach to your homestead residence. If you are selling your homestead residence use a different title company. I suggest First American Title. If the property is not your homestead residence you do have a problem.

For further information Google "Pacific Western Bank v. Castleton" a relatively recent Arizona Court of Appeals decision.

Des.

 

[PayrollHRGuy]

Yes, I am trying to sell a house and the Title Agency is saying, "there's an active judgement against you."

When they say that, are they saying that there are negative consequences because of it or are they just mentioning it?

 

[thadamere]

I'm trying to sell an investment property I bought earlier this year. So from despritfreya's response I see this is a problem.

 

[despritfreya]

I'm trying to sell an investment property I bought earlier this year.

Since this is not your homestead and you did not do a "522(f)" motion in the Chapter 7 (no comment as to whether or not such a motion would have been successful in Arizona), the judgment lien could be a problem. If the creditor is not willing to issue a release of the judgment lien you might be stuck. I still recommend that you talk to someone in the legal department at First American Title.

Des.

 

[despritfreya]

I wanted to follow up with this. I have always been of the opinion (right or wrong) that a judgment lien recorded pre petition does not attach to property acquired post discharge but I have never researched the issue nor have I ever had to deal with the issue.

I do not know what 9th Circuit or Arizona bankruptcy cases hold as it relates to this issue. A quick “Fastcase” search did not turn up anything on point. Admittedly the search was cursory. What I did find is quoted below and gives some credence to my opinion. It is a relatively old case out of North Carolina. I have no idea if it is “good law” inside or outside of North Carolina (it has no impact in Arizona) but it might be worth exploring.


In re Clowney, 19 B.R. 349, 353 (Bankr. M.D.N.C., 1982)

The Chapter 7 discharge protects a debtor's interests in property acquired after the filing of bankruptcy. The comprehensive relief afforded by the Chapter 7 discharge protects the Plaintiffs' interests in property they acquire after bankruptcy and assures them a "fresh start" in their financial affairs. . . In these cases, the Defendants' judgments cannot be used to attach liens to real property the Plaintiffs may someday acquire. Such an action is prohibited since that would be a "continuation of an action" to collect a discharged debt "from property of the debtor". 11 U.S.C. § 524(a)(2).

The bankruptcy discharge as provided by section 524(a)(2), protects "property of the debtor" from the collection attempts of creditors holding discharged debts. "Property of the debtor" is that property acquired by the debtor after commencement of the bankruptcy case. 3 Collier on Bankruptcy ¶ 524.01. Accordingly, if the Plaintiffs someday acquire real property the Defendants are forever barred by the discharge injunction from attempting to collect upon their judgments. This includes direct attempts against the Plaintiffs and any indirect attempts such as the attachment of a lien upon their real property.

Hope this helps.

Des.

 

[Taxing Matters]

I wanted to follow up with this. I have always been of the opinion (right or wrong) that a judgment lien recorded pre petition does not attach to property acquired post discharge but I have never researched the issue nor have I ever had to deal with the issue.

That has always been my take on it, too. The pre-petition lien only attaches to those assets that were attached at the time the petition was filed; post-petition assets are not attached if the debt underlying the judgment was discharged. The Ninth Circuit Bankruptcy Appellate Panel (BAP) in a very recent fee case hints at just this when it stated:

Creditors filed a nondischargeability and objection to discharge adversary proceeding against Debtor and pursued it with tenacity. Creditors also objected to his homestead exemption. Given the scheduled assets and claims, collection of any significant portion of the prepetition judgment was dependent on minimizing the exemption claims, avoiding discharge so that Creditors could pursue postpetition assets, and, given Debtor's age and health, some significant luck.​

​

In re Gilman, No. 1:11-BK-11603-VK, 2019 WL 3096872, at *2 (B.A.P. 9th Cir. July 12, 2019). Note particularly the comment of the creditors seeking to avoid discharge so that they could pursue post-petition assets. The implication being, of course, that if discharge was granted they'd be unable to reach those post-petition assets.

But, of course, title companies tend to be conservative and may not want to clear title where there is a judgment lien recorded even when it can be shown to the title company that the lien does not attach that asset for whatever reason. I have experienced similar problems with title companies involving federal tax liens that are recorded but that no longer attach due to the self-releasing feature of the lien or due to bankruptcy.

 

[despritfreya]

But, of course, title companies tend to be conservative and may not want to clear title where there is a judgment lien recorded even when it can be shown to the title company that the lien does not attach that asset for whatever reason. I have experienced similar problems with title companies involving federal tax liens that are recorded but that no longer attach due to the self-releasing feature of the lien or due to bankruptcy.

This is why OP moves escrow to First American Title. Its now retired in-house Counsel, John Graham, was the best. He understood all of the nuances of bk law and instructed the title company accordingly. I believe his wisdom still permeates the policies at FAT.

Des.