J is for “Judgment” Lien and its Impact upon Homeowners.

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

1.      What Is a Judgment vs. a Lien and how do they arise in Real Estate?

When you owe money and are unable to pay, the creditor, unless it is the IRS, must take you to court before levying upon your back accounts or garnishing your wages. Typically the creditor will sue you in municipal court or in common pleas court in Pennsylvania if the amount of the claim is larger than $12,000 (up to 15,000 for Philadelphia County real estate matters). When a lawsuit is initiated against you, you will be served with a Complaint. If you do not respond (by answer or other responsive pleading) within a set period of time or appear at the hearing set for your case, a default judgment will be issued against you. This judgment will be recorded by the court.

In Pennsylvania, a judgment is an automatic lien on real property owned by the defendant in the county in which the judgment is located. The lien of a judgment lasts for 5 years, 42 Pa. C.S.A. Sec. 5526, and execution must be issued against personal property within 20 years after entry of the judgment, 42 Pa. C.S.A. Sec. 5529. In addition, via a mechanism called a writ of execution liens can be transferred to other counties in Pennsylvania where the debtor owns property. A lien on real property means that the debtor cannot sell the property until all liens are paid. However, a judgment lien can only be arise in real property. If the debtor does not own real property within the applicable jurisdictional limits, the judgment lien cannot attach to anything and all the creditor has is a recorded judgment. What is the use of this?  Well, the creditor can then use this judgment to pursue garnishment where available or levy upon your Pennsylvania bank accounts. However, wage garnishment is prohibited in Pennsylvania except for certain obligations such as support.  It is critical for homeowners to respond to all lawsuits by bringing them immediately to the attention of their attorney as in this way an ordinary unsecured debt such as a unpaid credit card debt can become a lien against your home. (See final comment below.)

The filing of a bankruptcy will stay a foreclosure and the underlying debt can be discharged in a bankruptcy except for certain obligations such as domestic support obligations (DSO’s) which are non-dischargeable under Section 11 USC. 523(a) (5) of the Bankruptcy Code. (But see my blog on the effects of a Chapter 13 bankruptcy on DSO’s for further valuable information for homeowners facing support issues.) Even if these steps are taken the lien of the prior judgment will typically continue (in some some cases they can however be completely or partially removed as discussed below) and may cause difficulties for homeowners. To avoid the continuing negative financial consequences they can create, the judgment will need to be removed where possible.

2.      REASONS TO HAVE A LIEN/JUDGMENT REMOVED:

When a creditor who has obtained a judgment but the debtor subsequently files a bankruptcy, the debt underlying the judgment is discharged through the bankruptcy. However, the lien of the judgment itself will remain and will be effective against any real property in the county and will interfere with the sale of the property. A lien on real property means that the debtor cannot sell the property until all liens are paid. Understandably, a title company will refuse to clear the title for a home when the property has a judgment lien against it until the title insurer receives proof that the lien has been satisfied or discharged and this can defeat or delay a sale of the property. A lien can of course be satisfied through payment but a typical homeowner files bankruptcy precisely because they can no longer pay their mortgage.

Even if you do not own real estate, while no creditor can collect upon the judgment, it will still continue to exist on the county record. The judgment will be reported to credit bureaus as active, thus continuing to impair your credit for up to 7 years, which is the length of time a judgment can remain on your credit.

3.      WHICH JUDGEMENTS AND LIENS IN REAL ESTATE MAY/MAY NOT BE DISCHARGED BY BANKRUPTCY AND HOW IS THIS DONE?

Certain types of debt cannot be discharged through a bankruptcy. For example, back child support cannot be discharged through a bankruptcy.

The lien of a judgment which was entered before the bankruptcy was filed will appertain against real property of the debtor for at least 5 years after entry of the judgment in the county. (See above).  However, to the extent the lien impairs an exemption the lien will be subject to removal once the debt has been discharged.

The homestead exemption in bankruptcy applies to property used as your residence. As of early 2012, the federal homestead exemption is $21,625 (if both spouses file, this is doubled). State homestead exemptions vary a great deal. In some states, like Florida, there’s no limit, while in other states, like New York, the limit is $50,000 to $150,000, depending on where in the Empire State you reside.  In Pennsylvania, for example, the federal exemption may be elected. So, if you have a house with $50,000 worth of equity you are entitled to a federal exemption with your spouse of $43,250.00. If you only owe $50,000 on the property, you can petition the court and have the judicial lien removed up to the exemption amount.  The lien for the remaining $6,750 will remain on the books. Unfortunately however, few homeowners in this day and age of declining home values have sufficient equity in their homes to claim equity impairment sufficient to remove liens following bankruptcy. (See final comment below.)

This process only works when you have claimed a valid exemption relating to your principal residence in the bankruptcy proceeding and the underlying debt has been discharged. If these conditions are met, the bankruptcy court will, upon motion made by your attorney, remove the lien to the extent it impairs your homestead exemption.

A debt must have however been included in the bankruptcy for it to have been discharged.  If the creditor was not listed and the debt existed before the case was filed, the case may need to be reopened and the creditor added. (This topic will be treated in greater detail in my blog under construction with the working title: “U is for the Unlisted Creditor in the Bankruptcy Alphabet”.)

If you are involved in a Chapter 13 bankruptcy, which is the usual case for homeowners, you cannot receive a discharge until your plan has been completed which can take up to 60 months. A judgment cannot be removed if a discharge has not been issued. You will have to wait until your plan is completed before you will be able to remove any judgments issued against you and begin to clear your credit.

Once the discharge has been obtained, clearing a listed judgment (but not the judicial lien if you have non-exempt real estate in the county: see above) may be as simple as having your lawyer send a notice of discharge in bankruptcy to the clerk of the court of the county in which the judgment was recorded with a copy to the creditor.

Clearing debt off your credit report however can require the additional help of a credit specialist.  Certain lawyers can assist you with credit repair.

4.      CONCLUSION: DO NOT HIDE YOUR HEAD IN THE SAND:

Obviously these rules are very complicated and, while I have illustrated with examples drawn mainly from Pennsylvania where I practice, vary from state to state and even within state boundaries.  There is however one sure fire way to keep a lien from arising on your real property in Pennsylvania and elsewhere.  Never allow a judgment to be entered against you before you have the oportunity to file bankruptcy. Instead, seek the advice of a competent bankruptcy lawyer as soon as you see the first sign of a law suit looming on your horizon and start planning for a bankruptcy filing to preempt the filing of a judgment.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Modification Services.

©Christopher C. Carr, Attorney at Law, 2012, All Rights Reserved. See Disclaimers.

 Other bankruptcy attorneys discussing the Letter “J” include:

The H in the Bankruptcy Alphabet is for “Honesty” and Fraud Avoidance.

190864341_12cca04722_t[1] is for Honesty

By Christopher C. Carr, Esq. Chester County bankruptcy attorney. Tel: 610-380-7969 Email: cccarresq@aol.com Web: christopherccarrlaw.com

Every potential bankruptcy client needs to understand that it is in his/her best interest to be entirely honest in their dealings with their lawyer, the trustee and the courts.  Not only may the debtor harm themself by failing to disclose material information but they may also potentially face severe criminal penalties.[1]  The United States bankruptcy laws require the debtor to disclose all income and assets to the bankruptcy court and the court is empowered under applicable federal statutes to uphold the integrity of the system and the participants in it. The theory and practice of these disclosures, is that if accurate and complete, the bankruptcy trustee and the court are able to determine what, if anything, the debtor can afford to repay to the creditors.

The bankruptcy disclosure form which every debtor is required to sign WARNS as follows:

Bankruptcy Crimes and Availability of Bankruptcy Papers to Law Enforcement Officials

A person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury, either orally or in writing, in connection with a bankruptcy case is subject to a fine, imprisonment, or both. All information supplied by a debtor in connection with a bankruptcy case is subject to examination by the Attorney General acting through the Office of the United States Trustee, the Office of the United States Attorney, and other components and employees of the Department of Justice.

WARNING: Section 521(a)(1) of the Bankruptcy Code requires that you promptly file detailed information regarding your creditors, assets, liabilities, income, expenses and general financial condition. Your bankruptcy case may be dismissed if this information is not filed with the court within the time deadlines set by the Bankruptcy Code, the Bankruptcy Rules, and the local rules of the court. [2]

Oftentimes the debtor will unintentionally hurt their case by “shading” the truth based upon an inaccurate understanding of the bankruptcy laws.  For example, a debt may not be listed on the petition because the debtor does not wish to reveal it. However, a debt that is not disclosed cannot be discharged in bankruptcy.

One of the great unfounded fears in all of bankruptcy is that the debtor will “lose all their assets in bankruptcy”.   Thus, a debtor may fail to reveal an asset which might have been partially or completely exempt and thus unnecessarily face the complete loss of the asset (see below).   There are generous exemptions available for many assets especially under the federal statutes and the laws of states like Pennsylvania where I practice law allow debtors to elect these, instead of the far less generous state exemptions. Other states like Florida have homestead exemptions which allow a debtor domiciled in Florida to completely shield their primary residence.

One article provides the following example of this temptation in action  and how the result of yielding to it easily can be detected:

“Because cash is difficult to track down, it may be tempting to pile up as  much cash as you can before bankruptcy and then “forget” to include the cash on  your financial  statement that you file with the bankruptcy court. Be forewarned that the  bankruptcy code imposes significant civil and criminal penalties on debtor’s who  intentionally provide false information to the bankruptcy court. Because the  bankruptcy trustee will have access to all your recent history of earnings, bank  statements and other financial records, there is a strong likelihood that the  trustee will be able to tell if you have attempted to siphon off cash before  filing your bankruptcy petition.”

It is thus essential that the debtor reveal all debts, assets and income sources to the lawyer who can then properly advise the debtor on legal protections and issues. If there is any question for example as to whether an item is an asset, the debtor should disclose it and let the lawyer decide how to properly treat it in the petition. Some writers have indicated that such proactivity can help to show that the debtor did not have the requisite intent to commit bankruptcy fraud.

One consequence of failing to disclose income or assets is that the debtor may be denied a bankruptcy discharge and remain liable for all debts under Section 727 of the Bankruptcy Code. Its provisions permit the court to dismiss the debtor’s case for dishonesty on the bankruptcy schedules, hiding assets, failing to maintain financial records, refusing to turn over records, or refusing to cooperate with the trustee. Not only may the court deny the dishonest or uncooperative debtor a discharge under Section 727 but any assets turned over during the case will still be sold by the bankruptcy trustee so that the debtor loses the property without any concomitant bankruptcy benefits.

As is indicated above, the most serious consequence for the debtor of dubious honesty is the prospect of being charged with criminal bankruptcy fraud.  Most bankruptcy fraud first comes to the attention of the bankruptcy trustee during the course of the bankruptcy or as a result of “whistle blowing” by neighbors, creditors, or ex-spouses. The IRS under the Internal Revenue Service Criminal Investigation’s Bankruptcy Fraud Program and the US Trustee are the most active in investigating fraud.  The Department of Justice Trustee Program encourages individuals to report bankruptcy fraud to the US Department of Justice for further potentially criminal action. The IRS also maintains a whistle blower award program.

The IRS appears to use the Bankruptcy Fraud Program to make examples of egregious miscreants, especially where a case also involves tax fraud or evasion, and consequently has an extremely high conviction rate. For example in 2011, 83% of those who had been charged with bankruptcy fraud are now serving time. In virtually all these cases, the individual was also required to make substantial financial restitution and also were required to serve a period of supervised release.

In addition, just because your bankruptcy is discharged, don’t think that you are off the hook. Individuals who file for relief under Chapter 7
or Chapter 13 of the Bankruptcy Code are subject to audits by the U.S. Trustee.  For further information visit the U.S. Trustee site.

The moral of the story? You are filing bankruptcy to get a fresh start. You have little to fear and everything to gain from the process if you are honest and adopt a policy of full disclosure.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality Chester County Bankruptcy Practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr, who has over 30 years if diversified experience as an attorney, concentrates his practice on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

 


[1] The criminal sanctions can include sentence of up to five years in prison and fines up to $250,000.

[2] Source

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  


I also provide Mortgage Modification Services.

For other articles in the nationwide bankruptcy ABC’s series check out these attorneys:

  1. Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: H is for Hearing.
  2. New York Bankruptcy Lawyer, Jay S. Fleischman: H is for Household.
  3. Northern California Bankruptcy Lawyer, Cathy Moran: H is for House, no not the doctor.
  4. Colorado Springs Bankruptcy Lawyer Bob Doig: H is for Homestead.
  5. Los Angeles Bankruptcy Attorney, Mark J. Markus: H is for House
  6. Hilo Bankruptcy Attorney, Stuart T. Ing: H is for Household Size.
  7. Cleveland and Lorain Count Bankruptcy Attorney, Bill Balena: H is for Honesty

©Christopher C. Carr, Attorney at Law, 2011, 2012, All Rights Reserved

Photo by Arenamountanus