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Lien Stripping Question related to NonDischargeable Debt

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  • Lien Stripping Question related to NonDischargeable Debt

    I have a pretty complicated question. Kudos to anyone who can answer it. The creditor got a judgment against the debtor and recorded a judicial lien in the county recorder's records. A year later the debtor got married, and two months later he filed bankruptcy. In the bankruptcy, the debtor claimed an exemption as a married person. The exemption amount was more than when he was single. But, the lien was recorded when the debtor was single. In the bankruptcy, the debtor then filed a motion to strip the lien using his married exemption. The Court granted the motion and gave the creditor the higher exemption amount for married persons. After the motion was granted, the Court granted judgment against the debtor and in favor of the creditor on a complaint for nondischargeability filed by the creditor. The Court found that debt was non dischargeable because it was for attorneys fees awarded against the debtor for a malicious lawsuit pursued by the debtor against the creditor in state court.

    Question: Can the lien stripping order be reversed? The exemption amount at the time the judicial lien was recorded was only $50,000. But, the debtor got the judge to grant him a $75,000 exemption because he got married after the lien was recorded but before he filed bankruptcy. This seems unfair because the debt was deemed nondischargeable. Should the debtor get the benefit of a higher married exemption amount in a lien stripping motion simply because he filed bankruptcy? He would not have had this benefit had he not filed bankruptcy because the exemption amount is fixed as of the date the judicial lien is recorded (which was before he got married, so he would only be entitled to the $50,000 exemption).

    Again, kudos to anyone who knows what I am talking about. I look forward to your response.

    Thanks.

  • #2
    I will guess that the bk court avoided the pre bk STATE court judgment lien based upon a 522(f) Motion. The avoidance of that lien, if not appealed, is final regardless of the marital status of the debtor. If the debtor improperly took an exemption, you had 30 days after the 341 to object to it. If you did not object, it was deemed "allowed", even if incorrect.

    You now have a post bk FEDERAL court judgment for non-dischargeability. This NEW judgment can be recorded and will be a lien (to the extent allowed by State law) on real property. Can the debtor claim the marital exemption? This I do not know but it would turn on State law at this point. Further, you can collect on the judgment as allowed by State law, subject to any limitations as it relates to its sole and separate nature. In my State a creditor cannot collect a sole and separate judgment from community assets so garnishing wages of a married person is a “no no”.

    Des.

    Comment


    • #3
      ....wow...makes my head spin...

      Some clarification....

      The lien was against the debtors real property (primary residence) safe assumption here.

      The exemption was the BK homestead exemption?

      In most states, the homestead exemption is not doubled in a joint/married BK case. What state was the Bk filed in?

      BK was a Ch 13 ? (Liens don't get stripped in a Ch 7)

      In the bankruptcy, the debtor then filed a motion to strip the lien using his married exemption. The Court granted the motion and gave the creditor the higher exemption amount for married persons. ...this in federal Bk court? creditor should be debtor, typo ? BK court doesn't give exemptions, they are set out in federal bk code or state bk exemption law.

      After the motion was granted, the Court granted judgment against the debtor and in favor of the creditor on a complaint for nondischargeability filed by the creditor. The Court found that debt was non dischargeable because it was for attorneys fees awarded against the debtor for a malicious lawsuit pursued by the debtor against the creditor in state court. ...still in federal BK court? Creditor filed an objection and/or adversary proceeding and won?

      Should the debtor get the benefit of a higher married exemption amount in a lien stripping motion simply because he filed bankruptcy? ....debtor is married and files joint petition, gets married exemptions.

      the debtor got the judge to grant him a $75,000 exemption BK court? BK judges doen't set exemptions, they are set out in either state law or federal BK code.

      Sounds like a mix of state court and BK court, sorry to be so confused, it would help some of the legal eagles on the forum if you clarified the situation...

      Welcome aboard the forum, lots of good people here to help out!

      Tom in Colo

      ps: you are the creditor, right?
      Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

      Comment


      • #4
        Des - Thanks so much for your responses.

        One thing -

        You said, "I will guess that the bk court avoided the pre bk STATE court judgment lien based upon a 522(f) Motion. The avoidance of that lien, if not appealed, is final regardless of the marital status of the debtor. If the debtor improperly took an exemption, you had 30 days after the 341 to object to it. If you did not object, it was deemed "allowed", even if incorrect."

        [But see FRBP Rule 4003(d) which states that “a creditor may object to a motion filed under § 522(f) by challenging the validity of the exemption asserted to be impaired by the lien.” So, we did raise the issue of the propriety of the exemption at the hearing on the 522(f) motion. We argued that when the lien was first recorded, the debtor was single, so the exemption amount at that time was applicable. The Judge did not agree, but he did not really give any reasons why.]

        I was hoping that because the debt is now nondischargeable, that might help me with the exemption amount (Query: Why should the debtor get a benefit for filing bankruptcy when the debt was nondischargeable. If he hadn't filed bk, the exemption amount applicable to a single person would have remained under State law - the exemption amount at the time the lien is recorded governs).

        Anyway - a follow up question. In the 522(f) hearing, the Court found that I still have a lien for $60,000 (after taking into consideration the first DOT and the exemption amount). Is my lien now secured similar to a second deed of trust? I would assume that upon a sale, the first DOT holder would be paid, then me, and only then would the exemption be paid. This makes sense because the $60,000 already takes into account the exemption amount. (The house appraised at $600K, the exemption amount was $75,000, and there was $465,000 owed on the first). Is the 522(f) order simply recorded with the county recorder? I am not sure how that works after post-bk.

        Thoughts?

        Comment


        • #5
          Tom, thanks so much for responding. I really appreciate it. I will try to clarify a few things...

          Yes, lien was against primary residence (real property).
          Exemption was state law exemption (CA).
          Chapter 7. Don't know why, but it was definitely stripped.
          While still in bk court, I filed a complaint for nondischargeability (adversary proceeding) and won.
          Debtor married like one month before filing bk for the sole purpose of getting the higher exemption. Is that legal? Seems shady to me. Debtor was single at the time the lien was recorded, and was only entitled to the lower exemption amount.
          I obtained an order for sale of the residence before he filed bk, and the state court judge only gave him the single person's exemption ($50,000).
          In bk court, he got a $75,000 exemption which is the state law exemption for married people. But, he was single at the time the lien was recorded.
          I feel like he should never have been able to file bankruptcy on me in the first place, because his debt to me was nondischargeable. So, why does he get a benefit by filing bk (i.e. a higher exemption amount?). Doesn't seem fair.

          Thanks for your reply!

          Comment


          • #6
            Originally posted by johnny77 View Post

            1. Why should the debtor get a benefit for filing bankruptcy when the debt was nondischargeable. If he hadn't filed bk, the exemption amount applicable to a single person would have remained under State law - the exemption amount at the time the lien is recorded governs.

            2. In the 522(f) hearing, the Court found that I still have a lien for $60,000 (after taking into consideration the first DOT and the exemption amount). Is my lien now secured similar to a second deed of trust? I would assume that upon a sale, the first DOT holder would be paid, then me, and only then would the exemption be paid. This makes sense because the $60,000 already takes into account the exemption amount.

            3. Is the 522(f) order simply recorded with the county recorder? I am not sure how that works after post-bk.
            These are excellent question to which I have no answers. I have never represented a creditor and I have never had a case like yours since, in my State, one need not file a 522(f) to protect a homestead. As it relates to recording, yes, do it. Get a Certified Copy from the Court and record.

            Des.

            Comment

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