Judge Michael Ridgway recently issued an opinion that summarizes how to "avoid" judgment liens in bankruptcy. The case is In re Mus, case number 17-42895.
A little background: Most real estate in Greater Minnesota is "abstract property". In Hennepin and Ramsey much of the land is "Registered property", a/k/a "Torrens property". For this post I will ignore Torrens property.
When a judgment is entered and docketed in District Court, the judgment becomes a lien on all abstract property in that county. The lien does not "attach" to property which is homestead property under state law; however, there is no way to determine if a piece of land is homestead or non-homestead. So, practically, a judgment is an apparent lien on any real estate you may own in that county.
When you file bankruptcy the personal liability on the debt would be discharged. However, the judgment would remain of record and still look like a lien on your real estate.
Generally we would simply discharge the judgment using the state court mechanism of Minn. Stat. 548.181.
Alternatively, however, we could ask the bankruptcy court to "avoid" the lien. That means the bankruptcy court would issue an order saying that the lien have no effect on a particular piece of land.
That is what Mr. Mus sought to do in his case.
The Court quoted a law review article posing the question of whether "a bankruptcy debtor must have equity in the
property to properly claim the homestead exemption, and in turn, avoid the lien? That is not the case. “The debtor
does not need to have equity in the property, only an interest. If an exempt homestead is fully secured by a
mortgage, the judicial lien can be avoided in its entirety, any appreciation or additional equity in the property is
saved for the fresh start of the debtor. Since impairment is a mathematical test, the debtor can avoid any and all
intervening judicial liens. On the other hand, if the debtor claims an exemption in property worth more than the
total of consensual liens, the available exemptions and the judicial liens, the judicial liens my not be avoided. You
‘do the math.’” Timothy D. Moratzka, “Do the Math! Avoidance of Judicial Liens Under § 522(f),” 21-JAN Am.
Bankr. Inst. J. 12 (December/January 2003)." Mus, page 5.
Since the value of Mr. Mus' property was less than the sum of his mortgage and his exemption, he was entitled to "avoid" the contract judgments. (There were some divorce court orders which were dealt with differently.)
So, although the case as to ordinary judgments is not very novel as regards "ordinary judgments", it is a handy summary of the procedure available through the bankruptcy court.
If you have judgments that remain of record against you after you filed bankruptcy, feel free to contact our office to talk about getting them off the public record.
